Economic Update 3-28-2016

• A slow week for economic releases included a slowing in durable goods orders, mixed housing data, and GDP for the 4^thquarter of last year that was revised upward slightly from an earlier estimate.

• Equity markets declined globally as a result of the Belgian terrorist attacks and lower energy prices, while bonds were little changed due to minimal changes in yields during the week.  Oil prices fell a few dollars from the prior week.

On a low-volume week shortened by Good Friday and marked by a terrorist attack in Belgium, markets were generally lower, as oil prices declined a bit and the dollar strengthened.  Health care and utilities were the best performing sectors, while energy and financials lagged—the latter due to oil pricing as correlations have obviously been quite high between the two factors.

Financial conditions have eased since lows in mid-February, effectively causing the same response as lowering interest rates (albeit in a more flexible and non-official way than through the Fed’s channels), through lower credit spreads and better liquidity.  The VIX volatility index has also fallen during that time, as it tends to do when conditions become less uncertain.

Foreign stocks in local terms performed similarly to U.S. issues, but a stronger dollar translated into an additional decline.  Emerging markets India and China gained a few percent on the week, and Japan was positive in local terms.  Europe was among the laggards, which is no surprise given that it was the epicenter of the recent terror attack, which naturally depresses sentiment.  Brazil also struggled on the week as the worst-performing market, although year-to-date gains remain impressive, as the political drama there continues to unfold with new twists and turns on a weekly basis.  However, on net, very little appears to have changed.

U.S. bonds were little changed, as interest rates ticked up slightly across the middle of the yield curve, but remained flat on the longest portion.  Credit outperformed governments as spreads tightened a bit on the week, as bank loans outperformed and high yield lagged (in unison with energy prices again).  Foreign bonds were similarly flat, but a stronger dollar translated many of these returns into the negative by about a percent.

Real estate in the U.S. performed largely in line with other domestic equities; European REITs suffered along with equities in that part of the world. Lodging/resorts was one of the strongest underperforming groups, which is no surprise, considering the terrorist attach aftermath can create concerns about travel plans.

Commodities fell a few percent in the short week, with crude oil prices dropping a few dollars from just over $41/barrel last week down to $39.60, which, at these levels, is a decent-sized percentage change we’ve become used to seeing as of late.  Other groups, including precious and industrial metals also fell, while agriculture came in flat on net.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                            

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.