Market Update - July 24, 2017Submitted by Jodi Vleck , Beta Wealth Group on July 24th, 2017
For the week ended July 21, most major U.S. market indices rose on the back of fairly decent corporate earnings and virtually no major global macro news. Q2 earnings season has been good thus far, and with nearly 20% of companies within the S&P 500 having reported including most of the large banks, more than 75% have exceeded consensus revenue and earnings expectations. For the quarter, S&P 500 earnings growth is projected to be at north of 8% overall, a figure which could go potentially higher should the US dollar continue its recent decline against currencies like the Euro, while current consensus earnings growth for 2017 is projected to range around 8-10%. By sector, utilities led the way followed by healthcare and telecom helped by lower interest rates, while industrials and energy lagged were laggards for the week.
Overseas, equity markets gained across most major countries, with emerging market performance trumping that of developed markets. Notably, the European Central Bank's (ECB) meeting concluded with no action taken, but their commentary was more dovish even as they noted their preference for monetary policy not to tighten too quickly since that could jeopardize the recovery process. Within emerging markets, Chinese stocks experienced decent gains as Q2 GDP game in a tenth better than expected at 7%, with industrial production and retail sales numbers showing a rebound, despite the efforts of Chinese officials to tighten policy in order to wring out excesses in internal debt levels especially in state-owned enterprises. The ongoing ‘bottoming’ of EM economies has certainly aided the strong market advance of that segment year-to-date, leading all others.
U.S. bonds gained as interest rates declined across the yield curve. Investment-grade credit slightly outperformed government credit and outperformed high yield. which escaped with modest gains despite being dragged lower by weaker energy sector results. Developed market foreign bonds fared well due to a weaker dollar, weaker inflation trends and dovish ECB commentary, gaining notably for the week, while Emerging market bond results were largely in line with U.S. debt.
Real estate markets fared well, in line with equity markets, helped by lower interest rates, with Residential Real Estate Investment Trusts (REITs) outperforming mortgage REITs despite the tendency of the latter to perform well in falling rate periods. Commodity indices lost ground in keeping with a weaker energy sector, although gold jumped by over 2% helped by lower bond yields;West Texas crude fell just over a percent to end the week.