Market Update - January 9, 2017

For the week ended last Friday, U.S. stocks generally rose following continued optimism about the 2017 market outlook and decent economic data to begin the year, with the Dow Jones Industrial Average missing the 20,000 mark narrowly. By sector, healthcare and technology led with returns over 2% for the week, while bond proxy sectors such as telecom and utilities lagged. On the economic front, ISM manufacturing and non-manufacturing indices pointed to continued expansion, while the employment report for December was strong but missed consensus expectations.

Foreign equities outperformed domestic markets, led by Japan and the emerging markets, while the U.K. and Europe ended up approximating U.S. markets. In both Europe and Japan, market expectations are fairly low, and volatility could play a key factor going forward especially in Europe as several key elections are on the calendar early this year.  Emerging market returns were broad-based, with positive returns across geographies such as Latin America, Eastern Europe and Asia.

U.S. bonds fared positively during the first week of the year, with interest rates again ticking down somewhat off highs reached during the last several weeks, and while investment-grade debt largely gained ground for the week, longer duration as well as high yield corporates led the way with the strongest gains,  Emerging market bonds also gained, while major developed market bonds lagged with rate increases as inflation results in Europe came in higher than expected at 1.1%, which marks the fastest increase in about three years.

Real estate markets gained several percent in the U.S. and Asia in keeping with broader equities, while developed European returns were positive to a lesser degree. Commodity indices were mixed for the week, with energy down (mostly due to a drop in volatile natural gas), and industrial and precious metals higher.