Economic Update 1-30-2017

• Economic data for the week was focused on a somewhat lackluster GDP report for the 4^th quarter, along with mixed durable goods data and poor housing results.

• U.S. and developed foreign equities experienced gains for the week, with emerging markets gaining even more strongly.  Bonds were flattish with minimal net changes in interest rates for the week, while commodities were mixed as crude oil prices changed little for the period.

U.S. stocks gained on the week, with the Dow reaching that 20,000 level as earlier mentioned.  From a sector standpoint, materials and technology led the way with gains well over +2%, while telecom, utilities and energy lagged with negative returns for the week.  Earnings results have ramped up in importance with over a hundred firms in the S&P reporting last week, with mixed results relative to expectations.  President Trump also made headlines in his first week in office, with promises to dramatically reduce regulations, positive talk on U.S. energy infrastructure, and work on renegotiating trade agreements (including a departure from the Trans-Pacific Partnership).

Foreign stocks in developed Europe and Japan performed generally in line with U.S. markets, while emerging market equities outperformed—with gains in almost all key markets.  Earnings in Europe have come in a bit better than expectations so far, coupled with hopes that Trump-inspired growth in the U.S. could carry over abroad, and better-than-expected GDP results in the U.K.  Rhetoric from Japan points to a continued easing path, which as raised expectations for investors hoping that this stimulus will eventually lead to stabilized/higher growth prospects, as well as a weaker yen, which would be a plus for exporters.  A combination of bottoming domestic conditions, some signs of optimism in developed markets and stronger commodity prices have all helped EM achieve another strong start to the year, as they did in 2016.

U.S. bonds ticked higher earlier in the week, but reversed by Friday to result in little change across the yield curve.  Consequently, bond total returns were about as flat as they’ve been in some time for a week.  Long treasuries lost about a quarter percent, while high yield corporates gained just over that same amount.  Developed market foreign bonds lost ground in local terms, but were similarly flat when translated back to dollars; emerging market bonds fared a bit better.

Real estate in the U.S. lost ground for the week, while foreign REITs in Asia and Europe ended with positive gains.  Domestically, pro-cyclical sectors such as lodging/resorts continued to outperform, while regional malls/retail struggled as they have for the past six months

Commodity indexes generally lost ground on the week, with declines in gasoline prices, sharp gains in natural gas, but little change in West Texas crude oil, which ended the week a few pennies from where it started at $53.20.  Both precious metals and agriculture lost ground, but industrial metals—thanks to copper—gained a few percent.

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.