Market Update - March 6, 2017Submitted by Jodi Vleck , Beta Wealth Group on March 6th, 2017
For the week ended March 3, U.S. stocks gained approximately a percent, featuring a sizeable rally on Wednesday following President Trump's more conciliatory speech to Congress Tuesday night. Early last week, several members of the Federal Open Market Committee (FOMC) referenced the fact that a March rate hike was ‘still in play’, with Janet Yellen herself signaling in a Friday speech that the Fed was likely to raise rates during its March meeting. From a sector standpoint, financials, energy and healthcare sectors led the way with sharp gains, while more defensive utilities, telecom and consumer staples sectors lagged with minor losses. From an economic standpoint, strong manufacturing and non-manufacturing PMI data alongside strong jobless claims and consumer confidence numbers offset mixed housing numbers.
Foreign markets especially in Europe experienced decent gains, coinciding with more positive sentiment and business activity readings, while Japanese and emerging markets lagged, as measured in US dollar terms. Despite better-than-expected manufacturing and service indicators, Chinese markets detracted from emerging market (EM) returns. In Europe, we expect election rhetoric to continue to play an instrumental role in the upcoming weeks, notably the numbers for populist candidates such as France's Marine Le Pen. The implications here are significant, with an increased chance for a Eurozone breakdown, consistent with the concerns expressed regarding the implications of Brexit.
U.S. bonds lost significant ground on the week, as Fed comments about interest rates pushed rates higher across the yield curve, notably at the short end, and to a lesser extent at the long end of the yield curve. As expected, long treasuries lost the most ground, while high yield and floating rate debt ended the week on a positive note. Foreign bonds in both developed and emerging markets were off slightly in local currency terms, due partly to higher inflation readings in Europe.
Real estate lost a bit of ground during the week consistent with with higher rates, as is to be expected. Healthcare and industrial REITs held up a bit better, while Retail and Asian REITs declined most dramatically.
Commodities lost ground during the week, due to declines in energy and especially precious metals, which reacted negatively to rising interest rates. Agriculture was the sole positive group for the week, led by higher corn and wheat prices. Crude oil prices continued to bounce around in the low 50’s, ending off just over a percent, driven by news of the Saudis cutting prices to retain market share.