Economic Update 11-20-2017

• Economic data for the week was highlighted by stronger retail sales, mixed-but-still-strong manufacturing and industrial production results, along with slightly higher inflation.  Homebuilder sentiment improved, while jobless claims remained very low.
• U.S. equity markets were mixed with small caps outperforming large caps.  Emerging market stocks similarly outperformed developed market equities.  Bonds achieved positive gains, while foreign bonds were helped by a weaker dollar.  Commodities lost a bit of ground with crude oil prices ending flat for the week.

U.S. stocks were mixed with large-caps coming in slightly negative, while small-caps recovered with sharper gains, as earnings reports for the week came in with strong results.  By sector, consumer discretionary and consumer staples led the way with gains over a percent, helped by a strong showing from constituent Wal-Mart, while energy stocks lost the most ground during the week, down over-3%, as oil prices fell back somewhat during the week.  The House passed their version of the tax bill during the week, but it remains to be seen what happens in the Senate, whose version varies in some respects.  With Congress out for the holiday week, news will have to turn elsewhere for the time being.

Foreign stocks were mixed, with more negative returns in Europe and Japan helped somewhat by a weaker dollar, following weaker-than-expected earnings.  Interestingly, in Japan, stocks lost -2% in local terms, despite strong corporate profitability, but a government report noted that the nation could be close to exiting its period of deflation (which would naturally result in lowered QE over time).  Similarly to developed markets, a weaker dollar turned smaller emerging markets gains more strongly positive.  Strength in Brazil and South Africa offset weakness in China and Russia.  Overall, the recovery occurring in foreign markets continues to press higher and has caused some economists to reassess their assessments of global growth higher over the next year or two.

U.S. bond indexes rose on the investment-grade side, as rates declined on the longer end of the yield curve, although they twisted a bit higher on the shorter-side, in keeping with expectations for the Fed to move rates higher in December with recent benign economic and labor news, as well as higher inflation last week.  While most investment-grade bonds performed within a fairly tight range, high yield lagged with flat returns, in keeping with more recent weakness.  Developed market foreign debt performed similarly to domestic bonds, although a weaker dollar propelled gains to nearly a percent for the week.  Emerging markets in both local and USD terms fared among the best in the group.

Real estate in the U.S. declined slightly, with residential real estate suffering, while mortgage REITs and retail/malls bouncing back from recent negative momentum.  REITs lost more ground and European real estate gained.

Commodity indexes lost ground, despite the weaker dollar.  Precious metals led, by gaining nearly +2%, while energy, industrial metals and agriculture as a whole all declined.  Despite a dip mid-week, due to demand concerns noted in an international agency report and rising U.S. production, crude oil prices recovered close to where they started the week, at $56.71.

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.