Economic Update 4-18-2016

• Economic data for the week was plentiful but mixed, with neutral results from retail sales and inflation, weaker industrial production and consumer sentiment but strength in some manufacturing results.

• Equity markets gained ground with higher oil prices and positive earnings results.  Government bonds lost some ground on higher interest rates, but tighter spreads benefitted corporate bonds. Commodities also rallied, led by oil and agriculture.

U.S. equities generally gained ground on the week as earnings reports came in a bit better than expected and a production cut in oil helped general sentiment in the commodity space.  Financials, industrials and materials led the way with returns in the low single-digits, while defensive consumer staples and utilities came in flat to slightly negative for the week.  Financials gained ground largely due to better-than-expected earnings reports from megabanks Citi, Wells Fargo and JPMorgan.  With a ‘risk on’ environment, small cap stocks rallied to outperform mid- and larger-cap indexes domestically.  This coming week will be another high-volume one for earnings reports, which could drive a degree of market sentiment.

Foreign stocks outperformed the U.S., with gains in Japan and Europe, despite a slightly stronger dollar.  Emerging markets also fared well, with gains similar to those in developed regions, but led by further gains in Brazil as hopes for political change remained intact ahead of a key vote on the issue of presidential impeachment.  Some stabilization in commodity markets has also been a boost to Brazilian sentiment, witnessed in year-to-date strength from commodity exporters Canada, Australia, Chile, South Africa, Russia and a few others.  Key developments for the week included the U.K. keeping interest rates unchanged, largely a result of the uncertainty surrounding the upcoming ‘Brexit’ vote in June.  In EM, the release of Chinese GDP, which fell precisely yet unsurprisingly within the intended range of 6.5-7.0%.  The trend continues downward, led by industrial performance, which is back at 2009 growth levels (although still just below 6%!).

U.S. bond prices were mixed with risk-taking being in vogue for the week, as interest rates ticked upward across the bulk of the curve. Government bonds came in negative, while credit—especially high yield and floating rate bank loan—gained upwards of a percent for the week.  European and Japanese debt was generally currency-driven, while emerging market bonds gained in keeping with stronger risk assets and commodity sentiment.

Real estate earned flattish to minimal gains in the U.S., led by positivity in more cyclically-sensitive lodging/resorts, while the popular apartments/residential group pulled back a bit.  Asian REITs performed strongly, on par with equities, led by gains in Australia and Japan, while Europe lost some ground.

Commodity indexes gained over a percent, led by sharp gains in industrial metals copper, zinc and nickel.  Energy gained on net with crude oil rising from $39.70 to $41.70, with investors anticipating the weekend’s meeting of the world’s major oil producers in Qatar (however, the weekend came and went with no agreement, fueling fears of a longer-lasting supply glut by Monday morning).  Natural gas continued its decline due to the usual variables of high inventories and lessened weather-related demand.  Agriculture was another positively-performing group on the week, led by corn and soybeans, while gold lost ground on risk-taking sentiment elsewhere.

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.