Weekly Market Update - July 11Submitted by Jodi Vleck , Beta Wealth Group on July 11th, 2017
In what was effectively a lower volume holiday-shortened week ending July 7th, most major U.S. market indices rose modestly, with financials, industrials and materials sectors experiencing the sharpest gains while the energy sector lagged the most due partly to lower oil prices alongside bond proxy sectors such as Utilities and Telecom. The specter of higher interest rates in the US, coupled with European Central Bank (ECB) comments particularly about removing any further monetary easing, both reinforced the notion that we could be facing an environment of progressively higher rates both in the US and overseas, in the short to intermediate-term.
Foreign stocks declined modestly with small gains in Europe, which featured strong industrial production numbers across several countries, offset by more dramatic losses in Japan and the U.K., with the latter being impacted by weaker manufacturing numbers. Broader concerns over the ending of the ECB's quantitative easing policy continue to dominate investor sentiment, with ECB officials not unlike Fed governors in the U.S. utilizing their bully pulpit to further refine their message to the investment community. Emerging markets lost ground, despite strong gains in India, China and Russia; in Brazil, worries about potential negative political changes have been dissipating somewhat.
U.S. bonds lagged across the board with higher interest rates across the yield curve, consistent with a strong-enough jobs report that should not derail Fed tightening policy. Investment-grade credit outperformed government bonds with the exception of the high yield category, which lagged due to its exposure to the energy sector. Foreign bonds lagged U.S. bonds, as European rates rose to a greater degree over continued concerns surrounding the ECB's decision to move forward with removing future stimulus, which impacted rates in the periphery more than in core European nations such as Germany.
Real estate assets lost ground along with higher interest rates, with mall and healthcare REITs faring the worst, while lodging REITs ended flattish for the week. Year-to-date, foreign real estate assets have recorded gains in the low double-digits, while U.S. REIT returns have been largely flat. Commodities lost ground on the week led by a 4% decline in West Texas Intermediate Crude, due in part to a rise in US production.