TIAA Global Asset Management

U.S. equities quietly advance in light trading



November 26, 2014

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As the Thanksgiving holiday approached, U.S. equities continued their climb in very light trading. Foreign equity markets were also generally positive. In the U.S., equity markets have been supported by declining oil prices that have lowered energy costs for consumers and businesses in the second half of the year. As of November 26, it was still not clear whether OPEC would decide to cut production and boost prices.

Article Highlights

Fixed Income

The 10-year Treasury yield drifted down during the holiday-shortened week, ending at 2.27% on November 25, its lowest close for the month to date, and trading lower early the next day. For most of November, the yield on this bellwether security has stayed in a range between 2.28% and 2.38%. Meanwhile, sovereign debt yields in Germany, Italy and Spain remain at or near historic lows in anticipation of aggressive monetary easing by the European Central Bank (ECB).

Current updates are available here. For additional insights from TIAA Global Investment Strategist Dan Morris, view our Weekly Market Perspective Video.

U.S. GDP growth is revised upward, while other data is mixed

The government raised its estimate of third-quarter GDP growth from 3.5% to 3.9%—an upbeat report that defied consensus expectations of a downward revision to 3.3%. Details of the report showed that consumer spending, business investment in equipment, and inventory growth were all stronger than first reported. Export growth, however, was weaker.

Other data released during the week was mixed to slightly negative, including:

Foreign economies and markets appear somewhat brighter

Outside of the U.S., we see some encouraging signs, tempered by potential risks:


Overall, we are encouraged by the upward third-quarter U.S. GDP revision and now forecast annualized GDP growth of 3% in Q4, higher than the consensus of about 2.7%. 

On balance, both equity and fixed-income markets are behaving as we would expect as Federal Reserve tightening nears: spreads on corporate bonds (both investment-grade and high-yield) have widened relative to Treasuries, and large-cap equities are leading small-cap shares. The S&P 100 Index of large-cap stocks, for example, has gained more than 13% year-to-date, while the small-cap Russell 2000 Index is up only a little more than 3%.

Looking ahead, as the S&P 500 Index approaches the 2,100 level, we should see some sort of correction to reset extremely elevated optimistic sentiment. Such a pullback would present a buying opportunity, as we think 2,150 is the next target for the S&P 500 in 2015.

In fixed-income markets, there are effectively only two to three active trading weeks left in 2014, as issuers are mostly funded for the year and secondary trading will occur on thin volumes. Next week, markets will take cues from the November monthly payrolls report, and from the results of “Black Friday” retail spending.

The next Weekly Market Update will be published on Friday, December 5.

Weekly Market Perspective

Weekly Market Perspective