Economic Update 12-04-2017
- Economic data released last week included an upward revision in 3rdquarter GDP, a dip in the ISM manufacturing index, a recovery in various housing metrics and higher levels of consumer confidence.
- U.S. equity markets rose sharply during the week, outperforming foreign stocks, which lost ground. Bonds were little changed on net with interest rates mixed across the yield curve. Commodity prices fell, with declines in several key segments, including oil and metals.
U.S. stocks rose sharply on the week, with the Dow experiencing its best weekly return for the year, and reaching the milestone 24,000 mark. From a sector standpoint, telecom and financials rose by over +5%, while technology fell back by -2%. Sentiment was strengthened by a market-friendly (regulation-lite) confirmation hearing of nominated Fed Chair Jerome Powell, as well as the final steps and committee passage of the Senate’s version of the tax bill. However, further negotiations will be required to rectify differences between the House and Senate bills, with several individual amendments controversially added during the process. This week will be focused on the continuing resolution to continue government funding that currently expires on Friday, Dec. 8, and, without an extension, could result in a government shutdown. While not likely catastrophic from a market perspective, it certainly erodes political sentiment which could drag into tax reform passage efforts.
Interestingly, holiday sales stats have come in strong on a preliminary basis, notably Cyber Monday, which has been billed as the highest-volume internet purchase session of all time. Despite fears of its slow and agonizing death, brick-and-mortar activity appears to also be outperforming expectations, even with nearly 7,000 store closings in 2017, which is triple the level of last year.
Foreign stocks declined for the week, in almost all primary developed market regions. Despite European manufacturing PMI coming at over 60—the highest result in 17 years—inflation came in lower than expected, which lowered sentiment. Additionally, concerns were raised by the Bank of England regarding continuity of certain financial contracts if certain Brexit concessions aren’t granted. Emerging markets suffered sharper losses, with similar results in the larger BRIC nations. As much as anything, tax reform efforts in the U.S. appear to also be affecting sentiment abroad to as great a degree as their own internal dynamics as of late.
U.S. bond returns were flattish on the week, with minimal rate changes on net—short rates fell, intermediate rates rose, while long-term treasuries were unchanged. Credit outperformed slightly, by a few basis points. Developed and emerging market foreign bonds performed similarly in local terms, but weakened when translated due to a stronger dollar. Rates in the U.K. continued to rise as Brexit negotiations have been faring decently, and odds of another central bank rate hike have increased.
Real estate assets declined both in the U.S. and abroad. In domestic markets, retail/regional malls gained a few percent along with better-than-expected prospects for the holiday shopping season, while apartments fell back.
Commodity indexes declined for the week, led by drops in the prices for industrial and precious metals. Crude oil also fell back by a percent to $58.36, firming on Friday as OPEC extended production cuts through the end of 2018; this offset a rising U.S. rig count which boosts overall crude supply. In the energy segment, this was partially offset by a +5% in the price for natural gas.
|Period ending 12/1/2017||1 Week (%)||YTD (%)|
|BlmbgBarcl U.S. Aggregate||-0.03||3.36|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
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.