Weekly Economic Update

Economic Update 2-27-2017

  • On a shortened holiday week, and a light one for economic data, housing results were generally strong, and jobless claims continued to run at low levels.
  • Global equity markets were generally higher on the week, with continued improved sentiment, while U.S. bond markets rallied upon lower interest rates, as did foreign bond markets.  Commodities ended flat, with little change in crude oil prices.

U.S. stocks continued to accumulate gains with hopes for improvements on the policy side, including tax reform, etc., that has perpetuated flows into domestic equities.  Interestingly, the more defensive sectors of utilities, telecom and healthcare led the way, while energy lagged with a decline just over -1%.

Early in the week, positive news from Wal-Mart, and of particular importance, the online segment of the firm, buoyed sentiment.  Amazon is assumed to be the ‘decider’ when it comes to online commerce and is the first firm most think of when analyzing the ongoing cannibalization of brick-and-mortar commerce by the internet.  But, as evidenced by this example, other firms are also heavily involved in this shift, particularly those with advantages in scale, logistics and marketing.  This explains some of the troubles with the big department stores, and corresponding average retail mall, which we’ve described before.

Outside the U.S., emerging market and Japanese equities experienced gains for the week, while Europe declined.  For the latter, generally decent but mixed earnings results for the prior quarter were a broad catalyst, including continued concern over presidential election polling in France (which seemed to calm a bit last week) and Italian banks, which have been a source of ongoing concern.  These are interestingly tied together, as French candidates have differing views of the nation’s place in the Eurozone—of which they’re one of the largest members and arguably critical for its survival.  Italian banks also need broader Eurozone support (and capital); therefore, the breakdown or threat of breakdown of the Union has broad implications on a variety of sectors on the continent.  Aside from Trump’s policies, the foreign political environment looks to be a key source of headlines for 2017.  In emerging markets, on the other hand, a lack of progress in Trump’s more dramatic and controversial policies and bottoming of domestic economic conditions look to be driving continued much improved sentiment.

U.S. bonds fared well on the week, as interest rates ticked downward across the curve by almost 10 b.p.  Much of this decline occurred towards the end of the week’s trading on Friday, with perhaps some paring back of expectations for a Fed rate hike in coming months or progress towards fiscal action in Washington.  Long treasuries earned the highest gains, while other investment-grade corporate areas, high yield, bank loans were generally in line with each other.  Foreign bond indexes performed similarly to those in the U.S., with little change in the U.S. dollar index for the week.

Real estate experienced one of the more positive weeks of any group, with gains upwards of +2% in the U.S., just above those in Asia, while European REITs fell back just slightly.  Domestically, health care and residential real estate led the way, followed by decent gains in retail (perhaps from an oversold condition), while more the more cyclical lodging group continued to take a breather.

Commodities fell back slightly on the week, with energy and industrial metals largely flat, precious metals higher and agriculture falling back.  Crude oil moved a fraction of a percent higher, ending a penny below $54/barrel, based on higher reported inventories.

Period ending 2/24/2017 1 Week (%) YTD (%)
DJIA 0.99 5.81
S&P 500 0.73 6.09
Russell 2000 -0.36 2.89
MSCI-EAFE -0.14 4.21
MSCI-EM 0.48 9.42
BarCap U.S. Aggregate 0.37 0.68
U.S. Treasury Yields 3 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
12/31/2016 0.51 1.20 1.93 2.45 3.06
2/17/2017 0.50 1.21 1.92 2.42 3.03
2/24/2017 0.52 1.12 1.80 2.31 2.95

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. 

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