Market Update - March 20, 2017Submitted by Jodi Vleck , Beta Wealth Group on March 20th, 2017
For the week ended March 17, U.S. stocks ended up slightly higher in a market environment dominated by the Federal Reserve's updated economic outlook and widely-expected 25 basis point interest rate hike, which we wrote about earlier. Drilling down market performance by sector, defensive bond proxies such as utilities and telecom led the way along with materials, followed by consumer cyclicals, while health care and financials ended up as the only sectors in the red. After a strong start to the year, healthcare sector performance was dragged down by uncertainty surrounding the mechanics of the Obamacare repeal and a potential replacement plan, proposed budget cuts to the National Institutes of Health (NIH), and potential pressure on drug prices/reimbursements that would impact pharma/biotech companies. On the economic front, we had strong manufacturing data and higher inflation alongside robust housing data releases.
Foreign markets outperformed U.S. markets, with emerging markets leading the way, followed by the U.K. and Europe, with the 1% decline in the dollar enhancing local market returns. In Europe, market sentiment was helped by election results in The Netherlands, where a center-right party affiliated with the current prime minister emerged victorious, at the expense of more nationalistic candidates thus minimizing fears of the spread of continued populist sentiment across the continent. Elections in France over the next two months might prove to be the next key test, as nationalistic rhetoric in France has been much more vocal, and potentially impacts France’s role as a cornerstone of the Eurozone. We expect European market sentiment to be influenced meaningfully over the upcoming months by election results.
U.S. bonds posted positive returns for the week, as interest rates declined, with both investment-grade and high yield credit outperforming government issues and floating rate bank loans. Foreign bonds also fared well, benefiting from a weaker dollar.
Real estate fared well across most global markets, consistent with interest rates falling across the yield curve in the U.S. However, European Real Estate Investment Trusts (REITs) outperformed, in keeping with robust results from European equities. Within the US REIT universe, apartment REITs and lodging REITs outperformed, gaining 3% for the week, while mall REITs lagged. Commodities generally ended up with positive returns for week, led by strength in both industrial and precious metals and help from a decline in the U.S. dollar.