Economic Update 11-21-2016

• In the week after the election, attention refocused onto potential policies as well as the strength of current data to again gauge the probability of a Fed rate increase in December.  Retail sales and manufacturing data both came in better than expected, as did housing starts and jobless claims.  Inflation showed more tempered gains, as represented by PPI and CPI.

• Equity markets gained in the U.S. in a continuation of a post-election rally.  Foreign stocks gained in local terms, but a stronger dollar headwind pared these to declines.  Investment-grade bonds lost ground again on higher interest rates, while floating rate debt fared well.  Commodities gained on the back of higher oil prices.

U.S. stocks continued their decent run following the prior week’s election.  From a sector standpoint, energy and financials saw the largest gains, with higher oil prices and hopes for reduced financial industry regulation, respectively, while health care declined a percent.  Fed Chair Yellen’s testimony to Congress also reiterated that a rate increase could be ‘appropriate relatively soon’, assuming current data continues in a growth trajectory.

Foreign developed market stocks were generally higher in local terms, led by Japan, where GDP growth came in at a faster rate than expected; however, a stronger dollar turned developed market gains into losses.  Emerging markets lost ground in local terms, but with a smaller currency impact actually outperformed developed markets, with strong weeks in commodity-oriented Brazil, Russia and Mexico.  The central bank of Mexico raised interest rates in order to combat the sharp decline of the Peso and stem inflationary impacts.

U.S. bonds lost ground during the week as interest rates ticked up again with the bellwether 10-year Treasury getting above 2.3% for the first time since last December.  Credit outperformed government debt, with high yield ending the week with minimal losses and floating rate bank loans continuing their positive performance of recent weeks.  Foreign bonds lost ground in line with U.S. bonds, with ended up worse due to a stronger dollar for the week.

Real estate gained in the U.S., similar to broader equities and bucking the impact of higher interest rates.  Foreign REITs generally declined with a stronger dollar headwind.

Commodities experienced gains for the week, despite a stronger dollar.  Oil prices gained +5% to $46.40, upon renewed hopes (again) for OPEC production cuts.  Industrial metals lost some ground in a partial reversal of strength the prior week while precious metals struggled again as interest rates crept up, rendering gold and silver less attractive.

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.