Economic Update 3-19-2018

• Economic data for the week was highlighted by a drop in retail sales and housing statistics, but gains in industrial production, continued strength in several manufacturing metrics and labor.  Inflation results were as expected, reducing fears from last month.
• U.S. equity markets fell back for the week on lackluster news, but were offset by positivity in foreign stock markets.  Bonds also gained a bit of ground as interest rates ticked downward under recent highs.  Commodities were flattish, although crude oil prices rose during the week.

U.S. stocks lost ground for the week, with a variety of catalysts, such as the dismissal of Secretary of State Tillerson—seen as a more conventional pro-business advocate of free trade during a period where fears of a global trade ware are rising—in addition to lower retail sales and lower GDP estimates for the current quarter.  From a sector standpoint, defensive utilities performed best with a gain just under +3% on the week, while financials and materials lagged with losses of a similar magnitude.

Foreign stocks fared stronger than U.S. equities, despite a slightly stronger dollar.  Japanese equities gained by several percent, outpacing emerging markets and Europe, while U.K. brought up the rear with a loss.  Some of this was a bit surprising as news abroad was generally more negative, with the Japanese PM under scrutiny for questionable real estate dealings and disappointing inflation figures in Europe.  However, continued financial sector reform activity in China boosted emerging market equities, offsetting concern over the reform or no-reform aftermath of the upcoming Russian election (where Putin is supposed to win again).

U.S. bonds fared positively with more tempered inflation results and flows away from equities pushed interest rates downward a bit.  Longer-duration government fared best with gains over a percent and trimming their year-to-date losses, while intermediate-term governments, investment-grade corporates and bank loans fared similarly.  Foreign bonds also came in within a similar range, with gains in the U.K. and Europe tempered by negative returns from emerging market debt.

Real estate bucked the trend of other equities, gaining as interest rates normalized lower, in both the U.S. as well as Asia and Europe.  Domestically, mortgage REITs and residential fared best, although all sectors were in the green.

Commodity indexes were generally flat for the week, with strength in energy offset by lower prices in industrial metals, precious metals and agriculture.  The price of crude oil ticked down a bit from the prior week before ending the week about +0.75% higher, at $62.41/barrel.

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.