Market Update - June 12, 2017

For the week ended June 9th, U.S. stocks posted modest declines at least for large cap indices, while small caps rallied.  For the most part, the week was rather light on news leaving aside the much-awaited FBI Director testimony, when a rather sharp decline in the Nasdaq indices occurred on Friday, spurred partly by a well noted Goldman Sachs report regarding the high-flying valuations of tech companies, and a noted short-seller going public about his short thesis of Nvidia, which had been one of the strongest tech performers year-to-date. By sector, financials and energy led the way with strongly positive returns, while the technology sector was the notable laggard, down 2% for the week. Consumer cyclicals also lost ground, led by weakness in hotels, retail names and auto parts companies. 

Foreign markets fared worse than domestic markets, with the stronger U.S. dollar acting as a headwind globally, leading to modest declines in markets including the U.K., broader Europe and Japan, both in local currency and US dollar terms.  Emerging markets gained a modest amount, driven by market gains in China, while broader market sentiment continued to be positive.  In the UK, elections were a primary focus with voting resulting in a hung parliament, and both the Conservative and Labour parties each gained over 40% of votes tallied, an outcome which likely spells more political bickering and market uncertainty ahead. The ECB made no changes in policy, removing a reference in their statement to reducing rates further, but also announcing no plans on pulling back fiscal stimulus.  

U.S. bonds also lost ground for the week, with rates moving higher.  Investment-grade credit outperformed government credit by a slight amount, and both categories outperformed high yield and floating rate bank loans.  Strength in the dollar negatively affected foreign bonds in developed markets, and emerging markets to a lesser degree.

Real estate indexes were mixed across most sub-categories, with mortgage REITs, regional malls and lodging REITs outperforming health care and residential REITs.  US REITs sharply outperformed foreign REITs, with the latter hurt by dollar strength.

Commodity indexes lost ground during the week, as continued weakness in the energy sector outweighed higher prices in agriculture.  Crude oil lost another 4% for the week settling in at just under $46/barrel as oversupply worries continued, notably from the OPEC. Thus far, the 'Qatar crisis' precipitated by the severing of ties by Saudi Arabia and other Muslim countries, has not resulted in energy price spikes as in years past.