Market Update - March 27, 2017Submitted by Jodi Vleck , Beta Wealth Group on March 27th, 2017
For the week ended March 25th, U.S. stocks declined in part due to negative sentiment surrounding concerns over the administration's efforts to ‘repeal and replace’ Obamacare, which ended up being pulled at the last minute by President elect Trump. The effort by Republican leaders to pull the healthcare bill has begun to generate concerns that future agenda items such as tax reform may take longer to pass than many originally thought. For the week, the S&P 500 declined 1.5%, led by financials and industrials, while the utilities sector gained ground.
Over the past few months, the market rally, labeled by some as the ‘Trump rally’, was predicated on a pro-business agenda being pushed through successfully. However, now that the agenda has transitioned into the nitty-gritty of actual back-room political machinations, investors have become more attuned to market assessments of the magnitude and timing of legislative success, which in the future also includes items such as potential spending on infrastructure upgrades.
Weakness in the dollar improved developed market returns from negative to flattish/slightly positive in several key markets, with Europe outperforming the US during the week. Continued concerns over upcoming elections in Europe kept a lid on sentiment however, this was offset by stronger economic releases later in the week. Emerging markets also generally outperformed for the week, widening their year-to-date lead over other markets with strong economic data across several locations.
U.S. bonds ended the week on a positive note, as fund flows moved away from risk assets, and interest rates fell by about 10 basis points across the yield curve. As expected, long-duration governments ended up with the strongest performance, while government bonds and investment-grade credit performed generally in line. High yield corporates and bank loans however pared back as risk assets were less in favor and rates fell. Foreign bonds gained in line with domestic bonds in local currency terms, and outperformed domestic markets after accounting for the weak dollar.
Real estate markets were generally flattish on the week in the U.S., while Asian and European real estate outperformed modestly, in line with broader equities. Healthcare Real Estate Investment Trusts (REITs) outperformed domestically with returns in the low single digits, while lodging/gaming REITs declined by a modest amount.
Commodities were down for the week, in spite of a usually-helpful weaker dollar. Precious metals ended the week as the only category in the positive, while crude oil declined 2.7% to just under $48/barrel by Friday, as continued concerns surrounding over-production and high existing supplies kept prices contained. Interestingly, the Baker Hughes rig count has risen every week so far this year, except for one, which just intensifies market concerns about the upcoming inventory build-up.