Week in Review


Week in Review: December 11, 2017


U.S. equity markets (as measured by the S&P 500) ended a seesaw week up 0.4% the passage of a two-week stopgap spending bill took one timing risk away from tax reform. Developed international markets (as measured by the MSCI EAFE Index) finished fractionally higher, while the MSCI Emerging Markets Index dropped -0.5%. In fixed income markets, 10-year U.S. Treasury yields were unchanged to the end week at 2.38%.

One Step Closer


Investor sentiment improved as Congress reached an agreement on spending and thus avoided an immediate shutdown. The temporary agreement allows Congress to focus on finishing the tax reform package. Investors are closely watching as negotiators seek to find common ground between the House and Senate bills while not upsetting the delicate balance between tax cuts and revenue which has already been struck within each individual bill. It is likely to be a challenging exercise that is done in a gradual step-by-step fashion, reaching successive compromises and building upon them along the way. Solving this puzzle will not be easy, but we believe Republicans in Congress are highly motivated to resolve any differences and to get final legislation to the President’s desk by year end, if not before Christmas.

Bond yields reacted cautiously to a combination of the likelihood of tax-reform-inspired deficits as well as mixed economic data. The much anticipated November payroll repot was mixed. The headline number of an increase of 236,000 jobs was higher than consensus estimates of 195 thousand. However, prior month job gains were revised down and average hourly earnings were below estimates. Investors are paying even closer attention to these data points given the upcoming Federal Reserve meeting on December 13, 2017. Market expectations are extremely high that the Fed will increase the short-term Federal Funds rate by 0.25% to 1.25% and the all-important minutes from the meeting may provide additional clarity as to the participants’ views on policy changes in 2018. 

In the fixed income sector, new issue municipal bond supply continued to spike this month due to uncertainties about the tax treatment of certain sectors in the tax bill. At this pace, December may experience the highest monthly supply on record; the previous high-water mark was set in December 1985 when almost $55 billion was issued just prior to the Reagan-era tax reform. Defying initial expectations, demand has kept pace with surging supply as investors fear that the supply of new tax-exempt debt could shrink next year.
  



Market Returns (USD)

1-Week

Quarter-to-Date

Year-to-Date

1-Year

Global Equities

MSCI All Country World

0.1%

3.8%

21.7%

21.5%

S&P 500

0.4%

5.7%

20.7%

20.5%

Dow Jones Industrial Average

0.5%

9.2%

26.1%

27.0%

NASDAQ

-0.1%

5.5%

28.4%

27.7%

Russell 2000

-1.0%

2.3%

13.5%

11.2%

MSCI EAFE

0.1%

1.8%

22.2%

22.9%

MSCI Emerging Markets

-0.4%

2.8%

31.4%

29.2%

Hard Assets

MSCI US REIT

-0.7%

1.0%

3.7%

4.6%

Alerlan MLP

-0.8%

-4.8%

-10.2%

-5.9%

Bloomberg Commodity Index

-2.8%

-0.3%

-3.2%

-3.2%

Fixed Income

BofA Merrill Lynch Municipals 1-10 Year A-AAA 

0.4%

-0.3%

2.8%

2.8%

Bloomberg Barclays Intermediate Government/Credit

0.0%

-0.2%

2.1%

2.1%

Bloomberg Barclays High Yield Bond

0.0%

0.2%

7.2%

8.0%

JPMorgan GBI Emerging Markets Global Diversified

-0.2%

-1.5%

12.6%

13.0%

Market Levels

Friday

Week Ago

Year End

Year Ago

S&P 500

2,651.50

2,642.22

2,238.83

2,246.19

Dow Jones Industrial Average

24,329.16

24,231.59

19,762.60

19,614.81

10-Year U.S. Treasury Yield (Constant Maturity)

2.38%

2.37%

2.45%

2.40%

Gold ($/oz)

$1,248.49

$1,280.62

$1,147.50

$1,170.78

Crude Oil ($/barrel)

$57.36

$58.36

$56.99

$54.70

U.S. Dollar / Euro ($/)

1.18

1.19

1.05

1.06

U.S Dollar / British Pound ($/£)

1.34

1.35

1.23

1.26

Japanese Yen / U.S. Dollar (¥/$)

113.48

112.17

116.96

114.04