Market Update - February 6, 2017Submitted by Jodi Vleck , Beta Wealth Group on February 6th, 2017
For the week ended February 3, U.S. equities had a rough start partly due to concerns about President Trump’s travel ban announcement the prior weekend which fueled backlash by legislators and large corporations and raised questions around potential difficulties in passing future pro-growth agenda items, and partly due to disappointing earnings news from bellwethers like Amazon and UPS. However, as the week wore on, equities recovered on the back of pro-business action on the part of the administration, specifically promises to delay introduction of the recent Department Of Labor (DOL) fiduciary rule and proposals to scale back key provisions of the Dodd-Frank regulation, which were naturally viewed as positives for the financial industry and the broader market. On the economic front, stronger ISM manufacturing data and employment numbers offset middling housing, manufacturing and consumer confidence data.
Within the US, defensive sectors such as health care, utilities and consumer staples outperformed the broader market, while sectors such as materials, industrials and energy declined modestly. Increasingly, as the President's comments condemning high drug prices coinciding with his recent meetings with big pharmaceutical company executives illustrates, the markets seem to be ebbing and flowing with each new piece of political news.
Foreign stock returns were mixed, with flattish returns in developed markets, featuring modest positive returns in Europe and slight losses in the U.K. and Japan in local currency terms. Positive GDP growth was a key focus item in Europe as were earnings, where growth was finally expected to track U.S. growth. The U.K. markets were impacted by discussions of a ‘hard Brexit’ start date in March, which assuming parliamentary approval, starts the clock on an approximately 2-year process during which there will be inevitable twists and turns. Emerging markets outperformed developed markets, led by market gains in India, Mexico and Turkey, with the latter two markets gaining as the result of central bank measures to bolster the local currencies.
U.S. bonds were little changed across most of the yield curve, with the exception of 30-year yields, which ticked about 5 basis points higher. Consequently, investment-grade bond returns were mixed, while the high yield universe fared better. The US dollar declined nearly a percent for the week, which boosted USD-denominated returns for foreign bonds, both in developed and emerging regions, but particularly in the latter.
Real estate generally outperformed broader equities in the U.S., with even stronger results abroad, due to a weaker dollar. Domestically, regional malls recovered somewhat following a bout of volatility and negative sentiment for brick-and-mortar retail outfits, while cyclically-sensitive lodging/hotels gave up some ground.
Commodity sectors gained broadly due to a weaker dollar, which helped precious metals, but the agriculture and energy sectors also experienced gains, while crude oil prices ticked up slightly on the week. Energy market sentiment remains extremely sensitive to the balance between OPEC supply cuts and increasing swing supply from areas such as U.S. shale.