Market Update - February 21, 2017Submitted by Jodi Vleck , Beta Wealth Group on February 21st, 2017
For the week ended February 17th, U.S. stocks experienced yet another solid week gaining over a percent amidst little volatility. On the earnings front, corporate earnings for the fourth quarter of 2016 have been coming in at their best pace in over two years, with year-over-year earnings growth of 8-9% thus far. Even Janet Yellen’s congressional testimony, which one would characterize as ranging from mixed to hawkish, failed to deter market gains. From a sector standpoint, financials, health care and technology showed strength with gains of over 2%, while the energy sector was the notable laggard losing 2% for the week. On the earnings front, we had a fairly busy week with strong manufacturing data, higher than expected inflation and mixed housing numbers.
Foreign stocks also gained ground for the week, albeit to a lesser degree than U.S. equities, with the European and the U.K. markets exhibiting growth, while Japanese markets lagged. Emerging markets continued to post strong gains in keeping with the recent trend, fueled by hopes for stronger global growth and what that implies for cyclicals, and partly driven by improving sentiment given their under performance over the past several years. In Europe, sentiment has improved due in part to stronger earnings results though real GDP growth continues to be uninspiring. Japanese markets lagged due in part to weaker-than-expected GDP growth, and with domestic consumption looking flattish, we believe this raises questions around underlying fundamental strength.
U.S. bonds were mixed and slightly negative on the investment-grade front, as interest rates ticked up slightly across the yield curve. High yield corporate debt bucked the trend with modest gains, followed by bank loans, both of which have continued their strong momentum in recent months. Spreads have moved higher in key European markets such as Germany and France with the upcoming election in France showing support for populist rhetoric, which could end up being a downer for the euro, while emerging market bonds sold off.
Commodities indices declined on the week, featuring gains in gold and silver and sharp declines in industrial metals, agriculture and energy, the latter partly due to declines in natural gas prices.