Market Update - February 27, 2017Submitted by Jodi Vleck , Beta Wealth Group on February 27th, 2017
On a holiday-shortened week light featuring few economic news releases, U.S. equities continued to build on recent gains given hopes for policy improvements, including issues such as tax reform and corporate repatriation. Interestingly, more defensive sectors of the markets such as utilities, telecom and healthcare led the way with gains ranging from 1-4%, while the energy sector lagged with a decline of over 1%. On the earnings front, positive news from Wal-Mart including its initiatives around E-Commerce, buoyed sentiment. On the economic front, we had mostly positive news including strong homes sales in January and robust US manufacturing data.
Outside the U.S., emerging market and Japanese equities experienced gains, while European markets declined due partly to mixed earnings results, continued concerns over presidential election polling in France and the fiscal health of Italian banks, which have been a source of ongoing concern. Italian banks appear to need broader Eurozone support as well as capital, which then suggests that the breakdown or even the threat of breakdown of the European Union has broad implications on a variety of sectors. Leaving aside President Trump’s potential policies, the political environment abroad looks to be a headline grabber for 2017. In emerging markets, overall sentiment seems to be bolstered by a lack of progress in Trump’s more dramatic and controversial policies, and bottoming of domestic economic conditions.
U.S. bonds fared well on the week, as interest rates ticked downward across the curve by almost 10 b.p, with a large portion of this decline occurring towards the end of the week’s trading on Friday, due likely to a paring back of expectations for a Fed rate hike in coming months or progress towards fiscal action in Washington. Longer-term treasuries exhibited higher gains, while other investment-grade corporate debt, high yield debt and bank loans were generally in line with each other. Foreign bond indexes performed similarly to those in the U.S., due partly to modest change in the U.S. dollar index for the week.
Real estate showed good relative strength, featuring gains north of +2% in the U.S. and stronger gains in Asia, while European Real Estate Investment Trusts (REITs) gave up some ground. Domestically, the health care and residential real estate sectors led the way, followed by decent gains in retail due likely to short covering, while more cyclical groups such as lodging continued to take a breather.
Commodities fell slightly on the week, with energy and industrial metals largely flat, precious metals higher and agriculture giving back some ground. Crude oil finished a touch higher for the week at slightly below $54/barrel, due partly to higher reported inventories.