Market Update - January 30, 2017Submitted by Jodi Vleck , Beta Wealth Group on January 30th, 2017
U.S. stocks gained 1% for the week ending January 27, with most major indices participating (S&P 500, Nasdaq) while the Dow Jones Industrials Average reached the headline 20,000 level, which we believe is more a psychological milestone than anything else. From a sector standpoint, the materials, technology and industrials sectors led the way with gains ranging between 1-3%, while the telecom, utilities and energy sectors lagged with modest negative returns. Q4 earnings results have returned to prominence with over a hundred firms in the S&P 500 reporting last week including some headliners such as Microsoft and Chevron, with results coming in mixed relative to expectations. On the economic front, markets witnessed a lackluster GDP report for the fourth quarter, along with mixed durable goods and housing data. President Trump also made headlines in his first week in the Oval office, with promises to dramatically reduce regulations, positive talk on U.S. energy infrastructure, and work on renegotiating trade agreements including abandoning the Trans-Pacific Partnership.
Foreign stocks in developed Europe & Japan performed generally in line with U.S. markets, while emerging market equities outperformed including gains across almost all key markets. Thus far, earnings results in Europe have come in a bit better than expectations including better-than-expected GDP growth in the U.K. Market rhetoric from Japan suggests a continued easing path, which has raised investor expectations that stimulus will eventually lead to stabilized/higher growth prospects as well as a weaker yen, which would be a plus for exporters. Year to date, a combination of bottoming domestic growth and stronger commodity prices have all helped emerging markets achieve another strong start to the year.
U.S. bonds ticked higher earlier in the week, but reversed gains by Friday resulting in small changes across the yield curve. Long treasuries lost about a quarter of a percent, while high yield corporates gained just over the same amount. Developed market foreign bonds lost ground in local terms, but were flat in dollar terms, while emerging market bonds fared better.
Real estate in the U.S. lost some ground, while foreign real estate investment trusts (REITs) in Asia and Europe ended with positive gains. In the US, pro-cyclical sectors such as lodging/resorts continued to outperform, while regional malls/softline retailers continued to struggle with poor fundamentals.
Commodity indexes generally lost ground on the week, with declines in gasoline prices and sharp gains in natural gas. Both precious metals and agriculture lost ground, but industrial metals gained a few percent.