Market Update - February 13, 2017Submitted by Jodi Vleck , Beta Wealth Group on February 13th, 2017
For the week ended February 10, U.S. stocks rose 1%, fueled by the President's comments about a ‘phenomenal’ tax plan, which would include discussions on entitlement reform with fellow Republicans. Cyclical sectors such as industrials, consumer discretionary, and tech led the way with greater than 1% gains during the week, while the energy and materials sectors ended up being laggards ending the week slightly down. Interestingly, the S&P 500 index has gone almost 40 trading sessions without a swing of +/-1%, the longest run of this sort in its history, which suggests that we are overdue for higher volatility at some point. The VIX index, which measures implied volatility in the pricing of S&P 500 index options, has been hovering again at its lowest levels over the past few years, in the low double-digits. On the economic front, strong JOLTs and jobless claims data were offset by slightly lower consumer sentiment.
Foreign equity markets continued to post stronger returns relative to domestic equity markets, with emerging market, U.K., and Japanese equities experiencing the strongest gains, while European markets ended up as the only major group in the red, which resulted mostly due a weaker euro. European economic and earnings results have recently been better than expected, which has helped the recovery in equity prices. In Emerging Markets, China and broader Asia Pacific equities gained, helped by stronger trade data.
U.S. bonds fared well during the week as interest rates declined across the middle and longer end of the yield curve, with both government and investment-grade credit performing largely in line and outperforming bank loans and high yield during the week. A stronger dollar during the week acted as a headwind to foreign developed market bonds, while emerging market debt fared better since the currency impact to EM was minimal.
Real estate gained ground on the week helped by pro-risk sentiment and lower interest rates. U.S. REITs gained over a percent, similar to Europe, while Asian Real Estate markets fared better with stronger regional trade news from China, that can impact pricing for key REIT markets in Australia, Hong Kong, Singapore and Tokyo. Domestically, residential/apartment REITs gained ground, while retail slid and maintained its last place status within the US REIT universe.
Commodities ticked higher during the week, despite the strong dollar headwind. Energy and precious metals were the leading segments during the week, due in part to a sharp increase in the price of unleaded gasoline, while industrial metals lost ground. West Texas crude oil prices dipped by nearly $2 mid-week before recovering close to where they started the week, which put them close a high point in the $50-54 trading range that has been in place since December.