US equities decline
The US market (SPX) declined by 0.88% during the week ending May 29, 2015. The decline was due mainly to the contraction in the US economy. The GDP (Gross Domestic Product) declined by 0.7% in the first quarter against the expectation of 0.2% growth. The major factors that led to the contraction of the economy include larger trade deficit, lower inventory accumulation, weaker consumer spending, and an unusually harsh winter.
Other major economic indicators like housing data on pending home sales, new home sales, and home prices rose on strong demand. Pending home sales rose 3.4% in April compared to the previous month and 14% above the previous year. It was the highest level since May 2006. Sales of new homes climbed 6.8% in April to a seasonally adjusted annual rate of 517,000. US home prices continued to rise in March. The S&P/Case-Shiller Home Price Indices rose 4.1%.
However, the Markit preliminary services sector PMI (Purchasing Managers Index) fell to 56.4 in May compared to 57.4 in April. Unemployment insurance claims rose 7,000 to 282,000 for the week ended May 23.
In the first quarter of 2015, M&A (merger and acquisition) activity increased in the United States. Charter Communications (CHTR) agreed to buy Time Warner Cable (TWX) for $55 billion in cash and stock, valuing the company at $78.7 billion. The deal will combine the second and third largest US cable companies.
Singapore’s Avago Technologies will buy California-based Broadcom Corporation (BRCM), creating the world’s sixth largest chipmaker by revenue in the industry’s largest acquisition.
Stock market performance is a key driver of asset managers’ revenue. Performance flows directly to earnings and share prices. Major asset managers, including BlackRock (BLK), State Street (STT), Franklin Resources (BEN), T. Rowe Price (TROW), Morgan Stanley (MS), and Berkshire Hathaway (BRK-B), are affected by the performance of US equities.