Economic Update 9-18-2017

• Key economic data for the week included a disappointing retail sales report, slightly weaker consumer sentiment, moderately higher producer and consumer inflation and slightly improved jobless claims.  As anticipated, several of these metrics appear to be affected by recent hurricane activity.

• U.S. equities gained for the week in a variety of sectors, accompanied by a positive week in developed foreign markets, although tempered due to the negative impact of a stronger dollar.  Bonds lost ground on the investment-grade side as yields rose, with foreign bonds affected more negatively due to currency.  Commodities gained for the week, as energy prices rose sharply.

U.S. stocks gained, with sentiment higher as a result of damage reports from Hurricane Irma not looking as bad as initially expected as well as tempered rhetoric with North Korea.  Small caps sharply outperformed large caps, which restoring some of their lag this year.  From a sector standpoint, energy stocks gained over +3% on the back of stronger oil prices, along with similar strong returns from financials and telecom; defensive utilities lagged with a small loss for the week.

Foreign equities were ended mixed, largely due to currency effects.  Japanese stocks gained +3% in local terms on the back of stronger economic results, and little apparent impact from North Korean tensions, although a weaker yen moderated much of these gains.  On the other hand, local currency losses in the U.K. were turned into positive returns with a stronger pound.  European results were less dramatic, with moderate gains.  Emerging market stocks outperformed developed markets, with strength in China despite weakening growth—which has some investors convinced tightening measures are working to stem overheating.  Additionally, eased restrictions on stock shorting boosted sentiment.  Brazil also experienced gains despite another presidential indictment on corruption charges.

U.S. bonds suffered negative returns as risk won out during the week, driving yields across the curve higher.  Investment-grade credit held up better than treasuries.  High yield bounced back to a greater degree.  Developed market foreign bonds lagged due to higher yields and the headwind of a stronger dollar.  Emerging market bonds suffered a bit less due to a less severe currency impact.

Real estate gained modestly, underperforming broader equities, despite the usually-negative impact of higher interest rates.  Cyclically-sensitive lodging and regional malls bounced back sharply, with gains of several percent to lead the way, while apartments lost ground.  With a stronger dollar effect, Asian and European real estate lagged, with negative returns, while U.K. gained.

Commodities rose for the week, led by strength in the energy sector.  Both natural gas and crude oil prices rose +5%, in crude’s case to $49.89/barrel, with expected inventory drawdowns and talk of the Saudi-led OPEC agreement to extend production cuts beyond March of next year.  With risk taking precedence this week, precious metals prices declined, as did industrial metals.

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.