Economic Update 5-01-2017

• Economic data for the week were highlighted by a weaker-than-expected result for 1^stquarter GDP, and disappointing sentiment data, while housing ended mixed and jobless claims remained low.
• Stock markets rose globally, with help from results from the French presidential election that favored a conventional, pro-euro candidate.  Bonds declined a bit on the U.S. investment-side, but high yield and foreign debt fared well.  Commodities were mixed, as oil prices were little changed during the week.

U.S. stocks generally gained ground on the week, with the Nasdaq and Russell 2000 reaching record highs on little fanfare.  The primary driver of equity sentiment globally early in the week was the result of the French election last weekend, which favored Macron, a mainstream candidate, who will meet 2^nd place finisher populist LePen in the May runoff finale.  Legislative efforts to push ahead with tax reform remain on the table, while chances of a complete termination of NAFTA seemed to lessen as Trump tempered his language a bit about the treaty.  From a sector standpoint, growth sectors technology and health care led the way, with sharp gains, followed by consumer cyclicals; telecom and utilities lagged with declines for the week.

Foreign stocks fared better than domestic on net, with more direct sentiment influence in Europe from a sentiment trifecta, so to speak.  France’s election results were the primary catalyst—French stocks gained +6% and Germany was up +5%, each partially helped by a stronger euro vs. USD as well.  Additionally, the ECB’s commentary and sentiment that downside risks to the continent’s economy have ‘further diminished’ could have helped, although stimulus efforts were not pulled back.  Better-than-expected European earnings also helped sentiment.  Emerging market equities also fared well, and better than those in the U.S., while Japan lagged.

U.S. bonds suffered slightly the investment-grade side as interest rates ticked higher, more so with longer durations than shorter, while high yield debt gained in keeping with stronger company earnings results for the quarter.  Foreign bonds performed similarly in local terms, despite help from spreads tightening in Europe post-election, but a weaker dollar helped both developed and emerging market bond index results more than anything else.

Real estate generally experienced negative results in the U.S., down several percent, led by retail/regional malls, while European real estate performed well in keeping with broader equities.

Commodities were mixed on net, despite the tailwind of a weaker dollar.  The energy segment lost ground, despite crude oil being little changed on the week, with per barrel prices falling slightly from $49.60 to $49.30.  Industrial metals gains were offset by declines in precious metals as ‘risk off’ trades perhaps related to the French election results pulled back.

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.