Market Update - June 19, 2017Submitted by Jodi Vleck , Beta Wealth Group on June 19th, 2017
For the week ended June 16, U.S. stocks were approximately flat with large-cap stocks outperforming small cap stocks which declined during a period where there was precious little market-moving news until late in the week given that the Federal Reserve's quarter-point rate increase had been widely telegraphed. By sector, Industrials and Utilities led the way with 1%+ gains followed by healthcare and financials, while the technology sector suffered again as certain high-flying Nasdaq stocks continued to sell off as did the Materials sector. In a week that had middling economic releases including a drop in retail sales and disappointing housing starts data offset by low jobless claims numbers, one of the more impactful news items was the Friday Amazon announcement of its intent to acquire Whole Foods which hurts grocery retailers such as Costco, Target and Wal-Mart alongside food-oriented consumer staples names.
Foreign equities underperformed U.S. markets across almost every key geography, with Japan holding up slightly better and Europe, the U.K. and emerging markets underperforming. In Japan, the Bank of Japan (BOJ) voted to keep its current stimulus plan in place, targeting 10-year rates at 0% along with asset purchases. In the U.K., sentiment soured for a variety of reasons including an unexpected drop in consumer spending, uncertainty surrounding the fallout from recent elections and the potential impact that could have on Brexit-related negotiations. In emerging markets, Chinese markets declined as policy tightening appeared to have an effect on credit growth, while Russian markets suffered as the U.S. government issued additional sanctions.
Fixed income markets experienced mixed performance for the week and the U.S. yield curve flattened with slightly higher rates, as the short-end moved higher with increased fed funds rates while long-term rates declined consistent with weaker inflation readings. From a total return standpoint, bonds fared well with corporate credit outperforming governments slightly in the U.S., with the exception of high yield, which rose modestly. Strength in the dollar helped push international developed bonds into positive territory, while emerging market local debt fared far better with modest gains.
Real estate markets experienced an exceptionally strong week with 2%+ gains in the U.S and modest gains in Europe and Asia, fueled in part by likely lower future interest rates based on recent lower inflation readings. Commodities declined broadly last week with negative returns in almost all commodities subsectors, including metals and energy. Crude oil ended a mixed week down almost 2% at just under $45/barrel, and following the lows set in early 2016, oil seems destined to trade in the $45-55/barrel over the short-term future.