Economic Update 7-10-2017

• Economic data for the holiday-abbreviated week was mixed, with stronger ISM and non-ISM index data, while the monthly employment situation report underwhelmed a bit in some respects.
• Equity markets were mixed with the U.S. edging slightly higher, while foreign equities lagged across the board for the most part.  Bonds lost ground in most sectors as interest rates again edged higher, with U.S. debt outperforming foreign.  Commodities lost ground again due to continued weakness in energy prices.

In a lower volume holiday week, U.S. stocks rose slightly in the U.S., with financials experiencing the sharpest gains, while energy lagged by the greatest degree, in no doubt due to lower oil prices.  Higher interest rates, particularly due to comments in Europe about removing easing, as well as geopolitical concern over North Korean missile tests lurking in the background of sentiment.

Foreign stocks were down on net, with small gains in Europe—with strong industrial production in several countries, but tempered by a higher dollar—being offset by more dramatic losses in Japan and the U.K., the latter being affected by weaker manufacturing numbers.  Concerns over the lifting of ECB quantitative easing policy continue to dominate sentiment, and officials there, like Fed governors in the U.S., are using their communication platforms to further refine the message (tempering it as necessary to sooth financial markets).  Emerging markets also fell back, despite strong gains in India, China and Russia.  The Brazilian corruption situation remains in the headlines, but the intensity of concern seems to have dissipated somewhat.

U.S. bonds lagged across the board, with higher interest rates across the yield curve in keeping with a strong-enough jobs report that didn’t look to derail Fed tightening policy.  Investment-grade credit outperformed governments, with the exception of high yield, which lagged due to higher exposure to the oil-driven energy sector.  Foreign bonds lagged U.S., as European rates rose to a greater degree in a continued concern over the ECB moving forward with removing stimulus options—affecting rates in the periphery more than core nations such as Germany.

Real estate lost ground, along with higher interest rates.  In the U.S., malls and healthcare fared the worst, while lodging/resorts ended mostly flattish for the week.  Year-to-date, foreign real estate assets have made gains in the low double-digits, while U.S. returns have been largely flat.

Commodities lost ground on the week, with pressure again in energy segments oil and natural gas as U.S. production picked up once again.  West Texas Intermediate Crude fell -4% on net, with prices initially rising early in the week before falling back to just above $44/barrel.  In other segments, precious metals prices declined on a higher dollar and rising interest rates, while agricultural prices for wheat, corn and soybeans all rose sharply again with concerns over drought conditions in the U.S. putting a damper on supply at harvest time.  In fact, the price of wheat in particular has spiked to its highest level in two years.

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.