Market Update - April 4, 2017Submitted by Jodi Vleck , Beta Wealth Group on April 4th, 2017
For the week ended March 31st, U.S. stocks gained some ground, with the small cap universe sharply outperforming large caps. From a sector standpoint, the energy sector recovered alongside gains in oil prices, followed by consumer cyclicals; conversely, defensive sectors such as utilities and telecom lost the most ground. Starting next week, the focus will turn quickly to the Q1 earnings cycle, in addition to the legislative success of the Trump agenda that has dominated sentiment over the last few weeks. During the first quarter, large-cap stocks particularly within growth-oriented sectors like Technology fared well, outperforming weaker cyclical sectors such as energy, as well as mid and small-cap companies, especially the latter. On the economic front, stronger manufacturing & housing data as well as improving consumer confidence featured a week of robust data releases.
Foreign stocks especially in developed markets ended up flat for the week, with performance hampered by strength in the dollar. Returns were positive in Europe as sentiment continued to improve due to stronger economic and business fundamentals, while Japanese markets lost ground in conjunction with a poor retail sales report. Emerging markets declined, with Indian markets gaining ground while markets in Russia and China lost ground. Overall, during the first quarter, foreign stocks were amongst the best performers, outgaining virtually all other asset classes, in a welcome change of equity market leadership, with emerging markets outperforming developed markets as lower valuations and bottoming of fundamentals spurred investor inflows.
Within the fixed income universe, investment grade U.S. bonds were little changed on the week as interest rates were flat along the yield curve, high yield bonds gained ground, and bank loans gained more ground than conventional fixed income. Foreign bonds in developed markets gained a bit in local currency terms but ended up lagging overall due to a stronger dollar, same as emerging markets. During the first quarter, bonds were plagued by uncertainty surrounding interest rates and eventual Fed action, which led to corporate credit outperforming government debt, with especially strong results from high yield and floating rate bank loans, which outperformed the Barclays Aggregate Bond Index.
Real estate in the U.S. posted gains consistent with broader equities markets, while foreign names were negatively affected by a stronger dollar. Within the US, mortgage and lodging Real Estate Investment Trusts (REITs) continued to lead, while mall-based REITs continued to lag.
Commodity indexes rose last week, with the 5% rise in West Texas crude rising helping to drive the energy component higher, as inventories grew at a slower rate than expected and expectations persisted that OPEC would extend their policy of production cuts. Metals also gained ground despite a stronger dollar, while the agricultural segment was the only loser for the week mostly due to declines in the prices of commodities such as soybeans and sugar.