Economic Update 3-20-2017

• It was a busy week for economic data, as the FOMC raised interest rates by a quarter-percent, manufacturing data came in decently, inflation ticked a bit higher, and housing results and labor data came in stronger.

• U.S. equity markets ticked modestly higher on the week, but were outpaced by foreign stocks, and especially so by emerging markets.  Bonds also experienced a decent week, as interest rates declined somewhat.  Commodity prices rose with strength in metals, a weaker dollar and slight recovery in crude oil.

U.S. stocks bounced around zero, before ending up with a small gain for the week.  More defensive utilities and telecom led the way, oddly followed by materials and consumer cyclicals, while health care and financials ended up as the losing sectors.  Healthcare has been bogged down with legislative bickering concerning the future and economics of Obamacare fixes and/or repeals, more specifically last week by a proposed cut to the NIH.  With so many scenarios possible, the uncertainty is focused on the nature of reimbursements to pharma/biotech companies, not to mention the size of the insured/uninsured universe.

Foreign stocks outperformed U.S. issues, with emerging markets experiencing sharp gains for the week, followed by the U.K. and Europe.  The dollar declining by nearly -1% also contributed to enhancing already-better local returns.  In Europe, strongly positive sentiment emerged due to election results in The Netherlands, where a center-right party (affiliated with the current prime minister) emerged victorious, effectively rejecting more nationalistic candidates and reducing fears of a continued populist groundswell across the continent.  The elections in France during the next two months prove to be the next key test, as nationalistic rhetoric there has been much more   vocal, and potentially damaging, due to France’s key role as a cornerstone of the Eurozone.  Expect that any poll shifts or outright wins by ‘status quo’ or centrist candidates could result in a positive market reaction, while

U.S. bonds experienced a positive week, as interest rates declined.  Credit, including both investment-grade and high yield, outperformed government issues and floating rate bank loans.  Foreign bonds generally fared well, with percent or more gains in line with a weaker dollar.

Real estate fared well globally last week, in unison with interest rates falling across the yield curve in the U.S.  However, European REITs outperformed, in keeping with stronger results from European equities broadly.  Domestically, residential/apartments and hotels/lodging outperformed, up over +3% on the week, while malls came in last place, up just a fraction.

Commodities generally ended up with positive results on the week, led by strength in both industrial and precious metals and help from a decline in the U.S. dollar.  Agriculture was generally flat, while energy ended up with a minor gain.  Crude oil declined by a dollar earlier in the week, before recovering by Friday to $49.30.

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.