Market Update - May 31, 2017Submitted by Jodi Vleck , Beta Wealth Group on May 31st, 2017
For the week ended May 26th, U.S. stocks gained modestly, ignoring potentially negative developments including a China credit downgrade and Fed commentary pointing to rising rates. By sector, bond proxies such as utilities and consumer staples along with the technology sector led the way with 2% gains, while the energy sector lagged and fell 2% on the back of the OPEC meeting. On the economic front, a slight upward revision to first quarter GDP numbers was offset by a weaker durable goods report, weaker-than-expected housing data and neutral jobless claims data.
Foreign stocks were mixed, with developed market returns trailing the U.S., led by negative returns for Europe and the U.K. in US dollar terms (performance was positive in local currency terms). In a departure from prior years, European economic data has been robust, which has overshadowed mixed economic data in the US. While policymakers on the European continent continue to push the need for an accommodative monetary policy and growth remains sub-par overall, an improving economic picture has been a positive development for markets, especially when coupled with cheaper equity valuations. Emerging markets moved sharply higher, driven partly by a recovery in Brazil market sentiment following a tumultuous political week, while longer-term EM trends favoring growth and policy improvements remain in place.
With minimal change to the yield curve, U.S. bond returns ended up flat for the week for both government bonds and investment-grade corporates. High yield corporates fared slightly better, as did emerging market debt, particularly as the dollar declined against EM currencies. On the credit front, China’s debt was downgraded from Aa3 to A1 by Moody’s, the first such event for China since 1989, a reflection of concerns around slowing economic growth.
Real estate experienced slight gains for the week, with stronger returns in Asia and Europe, with areas such as mortgage, lodging and industrial REITs experiencing gains, while health care REITs gave up some ground. Commodities declined overall for the week, driven by energy and soft commodities, while precious metals saw gains. For the week, crude oil ended down 2%, after spiking above $51 upon hopes for extensive production cuts during last week’s OPEC meeting. However, oil prices fell dramatically later in the week to end at $49.80, due partly to the length and magnitude of the planned cuts being smaller than expected.