Economic Update 10-17-2017

• Economic data for the week was focused on the FOMC minutes, which appeared to sustain high odds for a December rate hike, retail sales came in as expected, as did inflation, while labor markets continued to show strength in the areas of job openings and jobless claims.
• Equity markets rose globally, with foreign stocks outperforming U.S. names with help from a weaker dollar.  Bonds also fared decently, with interest rates falling across the yield curve.  Commodities gained in a variety of sectors, including oil, which again gained ground and rose above $50/barrel.

U.S. stocks rose just slightly on the large-cap side, while small-caps declined.  A variety of political actions during the week added drama, but refused to take away from positive market results, including executive actions meant to circumvent Obamacare provisions, controversy about the future of NAFTA, a slight lowering of tax reform probabilities with a Trump vs. Corker tweet battle continuing.  From a sector standpoint, more defensive consumer staples and utilities led the way, gaining over a percent, as did technology, while telecom and financials lagged with losses.  Staples results were led by Wal-Mart, which will buy back more shares and optimistic assessments on online activity.  Financial stocks were hit with mixed earnings reports from several larger banks during the week.

Speaking of earnings, only a small number of companies have reported so far, with the coming weeks bringing more significant news.  Interestingly, roughly half of S&P companies have reported a negative hurricane impact during the quarter, which could hold down results somewhat.  The year-over-year Q3 earnings growth expectation is a more tempered +2.1% (per FactSet), with energy expected to bring over-100% growth relative to last year, while consumer discretionary and financials are expected to show declines.  This blip falls off for Q4, where year-over-year earnings results are again expected to land in the 10-11% growth range, with 2018 estimates looking similar at this point.

Foreign stocks gained on the week, as returns in key developed markets in Europe and the U.K. were similar to those in the U.S. in local terms, but fared far better due to a falling dollar.  The ECB noted that, while QE was being reduced, rates would remain lower for longer—keeping sentiment strong for European risk assets.  Emerging markets fared even better yet, up over +2% on the week.  This week, the Chinese 19^th Party Congress, a meeting held only once every five years, is slated to elect national leadership as well as set goals for the coming five years.  There seem to be thoughts of continued state-owned enterprise reform and possible forced deleveraging, in order to reduce internal debt risks; however, at the same time, it could slow the pace of growth.

U.S. bonds gained a bit overall, as rates again fell back, with investment-grade credit outperforming government bonds slightly.  High yield bonds were flattish for the week, lagging other segments.  Foreign bonds in developed markets gained in keeping with a weaker dollar, as did emerging market bonds to a somewhat lesser degree.

Real estate gained nearly +2% percent in the U.S., along with lower rates, with similar results in foreign markets Asia and Europe.

Commodities gained ground in almost all segments, helped by a weaker dollar, moving broader indexes higher.  Energy led the way, as natural gas prices gained nearly +10% as demand rose faster than expected; crude oil moved past the technically significant $50/barrel mark again, up over +4% to $51.45.  Industrial metals continue to be buoyed by Chinese demand.

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.