Economic Update 2-26-2018
- In a slower, holiday-shortened week, a sparse amount of economic data was led by a decline in existing home sales, a sharp move higher in leading economic indicators, a strong jobless claims report, coupled with FOMC minutes from January that leaned toward economic optimism.
- U.S. equity markets moved forward on the week, as did emerging markets, while foreign developed markets were held back by a stronger dollar. Bonds were flattish, with little change in interest rates during the week. Commodities were pushed higher by stronger pricing again in crude oil and natural gas.
U.S. stocks gained ground on the week. A sharp pullback in Wal-Mart shares affected the market early in the week, as results showed slowing e-commerce growth—a key area of focus in recent quarters across the consumer group as a variety of firms are combating the ‘Amazon effect’. Stocks recovered by the end of the week with stronger earnings growth in other areas as the flurry of Q4 reports have wound down, with the percentage of S&P firms beating estimates reaching an eight-year high. Concerns over a semi-hawkish tone of the FOMC minutes released mid-week were calmed by an expected more dovish and tempered testimony by Chair Powell in his first appearance before Congress in this week. From a sector standpoint, technology and materials led the way, while more defensive sectors telecom and consumer staples lost several percent.
Foreign stocks were mixed as Japan gained ground in local and USD-terms, upon strong manufacturing and export results. Europe and the U.K. ended with deeper losses due to the stronger dollar. An ongoing story in Europe is the timing of when QE accommodation is expected to be removed—as economic growth improves, the timeline has moved up. Emerging markets fared best, with strong gains in Brazil, China and Russia as strength in commodity prices and better internal consumer growth has kept sentiment high.
U.S. bonds were little changed on the week, with few news reports moving the interest rate needle, in contrast to prior weeks when inflation was the lead story. Government and credit performed similarly, as bank loans led with small gains. Foreign developed and emerging market bonds both gained slightly in local terms, which was given back and converted to losses when the stronger U.S. dollar was taken into account. European bonds haven’t been in the news due to continued low yields in several countries, but yields ticked up on Italy upon some concern over elections coming up in a week and lack of a clear front-running party in sight.
Real estate lost ground in the U.S. and Europe, but gained in Asia. REITs have suffered this year thus far, down -8% in the U.S. with shorter-term concerns over interest rates; the irony is that higher inflation has tended to benefit real estate investments over time.
Commodities ticked a few percent higher on net, with the energy and soft commodity sectors gaining ground, while industrial and precious metals fell back by several percent. Crude oil spot rose over +3% to a close of $63.55, as price levels retraced back upward towards highs from January. This was following discussions between OPEC ten other oil-producing states, such as Russia, for a long-term alliance intended to keep oil prices stable. The battle between foreign producer supply cuts and high U.S. shale production continues as markets seek the right balance.
|Period ending 2/23/2018||1 Week (%)||YTD (%)|
|BlmbgBarcl U.S. Aggregate||0.00||-2.13|
|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.