Market Update - March 6, 2018Submitted by Jodi Vleck , Beta Wealth Group on March 6th, 2018
For the week ended March 2, U.S. stocks declined rather broadly including across all market caps, with a portion of the decline attributable due to Fed Chair Jerome Powell’s optimistic take on strength in the U.S. economy and the fact that this could speed up interest rate increases. After recovering some ground, markets were again impacted negatively once the President’s announcement of tariffs on the steel and aluminum industries hit the press, raising fears of a global trade war. On the economic front, strong readings for manufacturing, consumer confidence and jobless claims more than offset slight downward revisions to prior quarter GDP growth and declines in new/pending home sales.
From a sector standpoint, the telecom and technology sectors fared the best with minimal declines, while materials and industrials sectors were the hardest hit. Per Factset, Q4 earnings growth has come in just under +15% year-over-year, the best in over six years, with the largest contributors being strong overall economic growth and the impact of tax reform. With the recent market drawdown, the 12-month forward P/E multiple for the S&P 500 based on consensus earnings estimates stands at 16x, which falls slightly below the longer-term average.
Foreign stocks fared worse than U.S. equities, despite minimal changes in the dollar during the week, with much of the negative sentiment tied to the same reasons underlying the decline in U.S. equities. European equities suffered due to European companies' status as heavy exporters as did emerging markets, while Japan fared better due to a stronger yen. Global trade concerns distracted investors from the Italian elections, where populist parties had larger gains than expected.
U.S. bonds ended the week flattish yet again with minimal changes in treasury yields, despite some mixed sentiment and inflationary concerns coinciding with new Fed Chair Powell’s testimony. With positive returns, government bonds fared slightly better than investment-grade corporates, which sold off a bit. Foreign government bonds experienced modest gains as well, as investor fund flows moved away from risky assets except for emerging market bonds, which lost ground.
Real estate returns were mixed overall with returns modestly negative within U.S. retail REITs, while cyclical lodging REITs ended the week with sharply negative returns, as did Europe and U.K real estate equities. Commodity indices fell a few percent on the week as declines in energy and industrial metals outweighed strong gains in the agricultural sub-sector.