Economic Update 10-30-2017

• Economic data for the week was highlighted by a strong 3^rdquarter GDP report, in addition to solid durable goods results.  Housing experienced a bit of a bounce back from a weaker hurricane-plagued prior month, while jobless claims contained to run at a low level.
• U.S. stocks ended the week again with gains, led by strong earnings and economic data; foreign developed markets gained in local terms, but lagged when a stronger U.S. dollar was accounted for.  Bonds lagged somewhat upon rates ticking higher.  Commodities gained on net as crude oil prices continued a trend higher, as production cuts looked to continue.

U.S. stocks gained on the week on the back of a strong Friday, with tech giants Amazon, Alphabet and Microsoft all experiencing solid gains based on earnings, and improved sentiment due to stronger-than-expected 3^rd quarter GDP.  This positivity led the S&P 500 to another all-time high.  From a sector standpoint, technology and consumer discretionary led the way with solid gains, while health care and consumer staples lagged with losses over a percent on the week.  Health care stocks were negatively affected somewhat by the President’s new crackdown on opiates and Amazon’s filing for drug distribution licenses in several states.

Foreign stocks outperformed U.S. equities in local terms, particularly due to strong results in Japan in the aftermath of election results and consistency in policy aimed toward multi-pronged economic growth.  While a far stronger U.S. dollar turned these gains into losses on net for the EAFE, Japanese stocks retained their positive results.  The ECB announced that it will ‘taper’, cutting its bond-buying program from €60 bil. to €30 bil. next year, which was not a surprise—the message from the central bank has been that while purchases would be done at a lower rate, they could last for a longer period of time, which was taken as a positive.  The ‘forward guidance’ language in that respect is similar to that used by the U.S. Fed in prior years.  The German business climate survey recently marked a 48-year high, which has been indicative of stronger conditions in Europe that have prompted the policy adjustment.  The Catalonian independence movement in Spain came to a head again, as the regional government’s vote to secede was countered by Spanish legislators—this affected Spanish stocks negatively (as Catalonia represents about a fifth of the nation’s economy) as well as the euro overall—but has not appeared to create additional volatility for other economies in the Eurozone at large.

U.S. bonds were mixed but generally slightly slower as interest rates ticked higher on the longer end of the treasury yield curve, in keeping with stronger economic results, which raises the probability of Fed action at a faster rate.  Overseas, foreign developed market bonds gained slightly, but the impact of a far stronger dollar resulted in a loss of about a percent.  Results in emerging markets were a bit worse, with a slight loss in local terms turning into a major loss in USD terms.

Real estate securities generally lost ground in the U.S. and overseas, with Asia faring slightly better and Europe slightly worse.  Regional malls and retail were hit especially hard again with major losses as investors questioned the continued viability of brick-and-mortar properties in the wake of internet commerce encroaching in an increasing number of areas.

Commodity indexes gained several percent despite the strength in the dollar.  Energy again led the way, with crude oil rising in price by +4% to $53.90/barrel for West Texas intermediate, and Brent crude moving above $60, on speculation that OPEC will extend their production cuts through the end of next year.  Natural gas, on the other hand, fell -5% on expectations for a warmer winter across the bulk of the U.S.—which drives down gas demand.  Metals pared back somewhat, as recent positive momentum slowed.

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.