Market Update - April 10, 2017Submitted by Jodi Vleck , Beta Wealth Group on April 10th, 2017
For the week ended April 7, most major U.S. stock market indices ended up a bit lower, with large-cap companies losing less ground than small-caps. The week packed in a lot of events that led to higher volatility, including news around U.S. missile strikes in Syria which pushed oil prices higher, Trump’s meeting with the Chinese premier, comments from Speaker Paul Ryan and other Republicans about increasing the potential timetable for tax reform and release of the FOMC's March Meeting minutes that suggested a likely shrinkage of its balance sheet prior to year's end. In addition, an underwhelming March jobs report added some volatility towards the week’s end, while ISM manufacturing and non-manufacturing data came in slightly weaker. With oil prices gaining ground, the energy sector experienced the strongest gains, followed by the utilities and materials sectors; conversely, technology, financials and telecom sectors recorded the largest losses. Real estate generally fared well, with US REITs gaining around a percent, while Foreign REITs performed a bit better.
On the International front, emerging market stocks performed best in local currency terms, followed by flattish markets in Europe and declining markets in Japan. Overall, strength in the dollar against most major currencies generally resulted in lower returns all around, with the exception of Japan where the dollar weakened against the Yen. Chinese markets gained consistent with the notion that China's foreign currency reserves rose again, even as outflows appeared to have subsided.
U.S. bonds were largely flat to slightly positive as interest rates ticked downward a bit, after a round of volatility over the latter half of the week, when the 10-year Treasury fell below 2.3% before nudging higher. Longer treasuries fared slightly better in that environment alongside investment-grade governments and corporate credit, as did high yield. In general, safe haven assets such as treasuries have tended to fare well under news of military action in conjunction with selloffs in riskier assets.
Foreign bonds in developed markets gained ground due to a flight to quality in areas such as Germany, but were negatively affected by a strong U.S. dollar, which gained a percent. This also pushed USD-denominated emerging market bonds higher, but negatively affected local debt.
Commodities experienced a solid week, with the energy sector leading the way, followed by precious metals . West Texas crude gained 3% for the week, due partly to reports of stronger refinery demand and U.S. missile attacks on Syria. Historically, any military action in the Middle East has boosted oil prices due to a ‘conflict premium’ of sorts, and has highlighted the role that commodities play as a portfolio diversifier.