Market Update - October 9, 2017Submitted by Jodi Vleck , Beta Wealth Group on October 9th, 2017
For the week ended October 6, U.S. markets continued their recent torrid run, with major indices such as the S&P 500 and the Nasdaq Composite hitting new highs yet again over the course of the entire week driven both by large-cap and small-cap companies. From a sector perspective, materials/financials/healthcare/technology led the way higher with gains in the 2% range, while energy and bond proxy sectors such as telecom lost ground. Driving the above gains were largely strong economic data (with the exception of payroll data) and expectations for a strong 3rd quarter earnings season, which begins in earnest this week, alongside improved sentiment in the area of tax reform. On the economic front, strong ISM manufacturing/Non-manufacturing data and durable goods orders more than offset the weak jobs report last Friday, which however was largely impacted by the hurricanes in September.
Foreign stocks across most developed markets were held back by a stronger dollar, which translated local currency market gains across Europe and the U.K. back into near-flat U.S. dollar denominated returns. Other markets were mixed, with Japanese markets gaining ground, while Spanish markets lost ground given the current independence referendum in Catalonia, which does not have international support but could as a near-term drag on markets in Spain. On the economic front, Purchasing Manufacturers Index (PMI) data in Europe registered strong readings, consistent with PMI data in the US. Emerging market gains were amongst the strongest in relative terms, driven by gains across BRIC nations, with strength in China somewhat offset by weakness in Russian markets due to the impact of crude price declines.
U.S. bonds declined modestly as yields rose across the yield curve consistent with higher economic growth expectations and rising expectations for a Fed hike in December, notwithstanding the September jobs report. Within the category, bank loans ended higher for the week while high yield and investment-grade credit returns lagged. Foreign developed market bonds were negatively impacted by a stronger U.S. dollar resulting in sharp losses, while emerging market debt declined to a lesser degree.
Real estate markets in the U.S. gained ground despite higher interest rates, and outperformed European Real Estate Investment Trusts (REITs) but underperformed Asian REITs. Commodities lost ground for the week led by declines in energy, with crude prices falling back to earth last week on the heels of a 5% decline.