Market Update - November 13, 2017Submitted by Jodi Vleck , Beta Wealth Group on November 13th, 2017
For the week ended November 10, U.S. stocks lost a bit of ground partly due to a few lackluster earnings reports but primarily due to weakened hopes for tax reform prior to 2019 even as Congressional-level negotiations continue to make gradual progress since House/Senate versions of the tax reform plans remain markedly apart. From a sector standpoint, defensive consumer staples led the way along with the energy sector, while financials lagged alongside telecom and basic materials companies. On the economic front, strong job openings data were offset somewhat by slightly bearish consumer sentiment data and a modest pickup in jobless claims.
Foreign stocks were also mixed, with local currency returns translating to stronger US dollar returns due to a weaker dollar; aside from economic releases, a good deal of sentiment was driven by prospects for U.S. tax reform which could potentially impact corporate competitiveness for overseas firms. By geography, Japanese equities led with gains while European and U.K. markets lost ground, especially the former, as European earnings strength has leveled off a bit relative to prior quarters. Emerging markets experienced the strongest gains of any geography, led by positive sentiment in China owing to strong export growth in addition to reforms that stand to open up financial sector ownership to foreign institutions.
U.S. bonds lost ground as interest rates ticked slightly higher, with government debt outperforming corporate credit for the most part as spreads widened, with high yield bonds losing the most ground. Foreign bonds in both developed and emerging markets shed ground in local currency terms, but were helped by a weaker U.S. dollar, which pushed USD denominated returns into positive territory. Interestingly, municipal bond markets have experienced higher uncertainty in recent weeks as proposed tax reforms could affect a number of bond market sub-segments, potentially reducing the segment of the overall bond universe that could continue to qualify for tax-exempt status.
Real estate markets bucked the trend of weaker equities with gains experienced across the U.S., Europe and Asia. Domestically, much maligned retail/regional mall Real Estate Investment Trusts (REITs) bounced back sharply followed by residential REITs, while mortgage REITs lost ground. Commodity indexes generally gained for the week, as stronger prices for energy and precious metals offset declines in industrial metals; crude oil gained just over 2% for the week.