Economic Update 4-24-2017
- Economic data for the week showed slower but still-strong results in regional manufacturing and production, while housing metrics were mixed.
- Stock markets gained globally, led by the U.S. and Japan, while other markets generally came in flatter. Bond returns were flattest of all, with minimal changes in interest rates for the week. Commodities lost ground along with oil prices declining due to higher supplies.
Equities ended the week a bit higher, despite volatility and earnings disappointments from a variety of Dow Jones Industrial Average components, including IBM and Johnson & Johnson. Additionally, continued speculation about tax reform weighed on sentiment. Consumer cyclicals and industrials led the way with the strongest gains, while energy lost the most ground along with lower oil prices. Earnings overall, though, have improved, with EPS growth for the S&P expected to be up 8-10% on a year-over-year basis, largely based on a recovery in energy earnings, although other sectors have been decent as well.
We didn’t want to get to this point/topic again, but the next political theater is the potential government shutdown if a new spending bill isn’t wrapped up by Fri., April 28, although the odds of this occurring still remain relatively low. A greater chance seems likely at the end of September, when the fiscal year ends and the debt ceiling needs to again be lifted.
Foreign stocks ended with Europe in the negative for the week, with uncertainly surrounding the French elections on Sunday (which resulted in an early May run-off between mainstream Macron and populist LePen), as well as a Paris terrorist attack late in the week. Polls continue to favor Macron at this point, but as know, polls have been notoriously off-base from time to time in recent elections. Naturally, a more conventional pro-Eurozone candidate would be more appealing for investment markets relative to the uncertainty an anti-Euro populist would offer (and threats of a ‘Frexit’). Japan experienced decent gains for the week due to stronger export growth and improvements in manufacturing sentiment; any signs of economic life are seen at positively as they’ve been fleeting.
British stocks also suffered in local terms, as British prime minister May called for a general election in early June, earlier than planned, in an effort to shake up the political gridlock that has been hampering ironing out of the Brexit process. While this sounds dramatic, this is much more common in Britain than our standard election schedule every 2-4 years.
Emerging markets fared just slightly in the positive on net, with most crosscurrents canceling each other out. Turkey was one of the best performers on the back of a controversial referendum win for Pres. Erdogan that has resulted in more concentrated power. Contrary to what policy analysts and human rights activists may applaud, authoritarian regimes have interestingly been favored by markets in many cases due to the perception of greater ‘stability’ such regimes provide for foreign investors.
Bonds experienced one of their flattish weeks in some time, with minimal changes in interest rates. High yield performed slightly better, by just a few basis points. Foreign bonds were similarly flattish in local terms, but performed slightly better when a weaker dollar was included.
Commodity indexes lost ground a bit on the week, with declines in energy, industrial metals and several agricultural contracts. The price of crude oil from $53.20 to again below the critical $50 threshold at $49.60, with reports of continued high supplies. Crude continues to trade in a band of $45-55/barrel, which is a range in place since November.
|Period ending 4/21/2017||1 Week (%)||YTD (%)|
|BlmbgBarcl U.S. Aggregate||0.00||1.75|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
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.