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Week in Review: June 19, 2017

What's Important

Equity markets are flat as the Federal Reserve sees moderate economic growth, lower unemployment and low inflation


Given the Federal Reserve’s outlook, the central bank raises short term rates and plans to reduce its balance sheet



Global markets were mostly flat as central banks in the U.S. and Japan update their policies in-line with investor expectations.  The S&P 500 and global equities (as measured by the MSCI ACWI) were flat for the week. Year to date, the S&P 500 remains up over 9% and the MSCI ACWI is up nearly 12%.


Watching Paint Dry


The U.S. Federal Reserve tightened monetary policy as it announced that it would hike short term interest rates a quarter point to a new range of 1-1.25% and its intentions to shrink its $4.5 trillion balance sheet. The central bank felt comfortable with these moves given the economy continues to grow at a moderate pace and unemployment remains low.  The Fed did highlight that inflation is below its target of 2% and they expect it to remain there for the remainder of the year.  U.S. equity markets anticipated the hike and as a result were rather subdued in response to the announcement.  The central bank attempted to allay potential investor concerns by providing a predictable plan that will only proceed so long as the economy evolves as anticipated.  Federal Reserve Chair Janet Yellen equated the tapering of the balance sheet to ‘watching paint dry’. While there is no timeframe on the tapering, the proposed runoff rate would take four to six years uninterrupted. 

As the Federal Reserve raised short-term rates, longer term bond yields came down this week.  The yield on the 10-year U.S. Treasury note fell to 2.16% this week, near its lowest level all year, and bond prices rose.  Investors are drawn to high quality U.S. bonds for a couple of reasons: 1) tempered expectations for inflation and economic growth; 2) U.S. yields are higher than those in other safe haven countries such as Germany or Japan. 

Economic data points such as retail sales, housing starts and permits came in weaker than expected this week.  Retail sales contracted on a month over month basis and much has been made of late about the decline in brick and mortar retail stores.  However, on a year over year basis, retail sales in May grew by 3.8%. Retail sales and consumer confidence are important figures as they are bellwethers for consumer spending which represents over two thirds of U.S. GDP.

The U.S. housing report for May came in weak and well below the consensus forecast. Housing starts fell 5.5%--the lowest since September - and the drop was across both the single family and multifamily segments. However, housing starts data are volatile and are subject to large revisions. Housing starts year-to-date are still up 3.2% while housing permits are up 5.5%. The housing market fundamentals continue to look solid to us due to elevated homebuilder confidence, low inventories and more first-time home buyers entering the market. 




Market Returns (USD)

1-Week

Quarter-to-Date

Year-to-Date

1-Year

Global Equities

MSCI All Country World

-0.1%

4.4%

11.6%

21.3%

S&P 500

0.1%

3.5%

9.7%

19.6%

Dow Jones Industrial Average

0.6%

4.1%

9.5%

23.7%

NASDAQ

-0.9%

4.3%

14.9%

28.5%

Russell 2000

-1.0%

1.8%

4.3%

24.3%

MSCI EAFE

0.0%

6.6%

14.3%

24.0%

MSCI Emerging Markets

-1.4%

5.1%

17.2%

28.3%

Hard Assets

MSCI US REIT

1.4%

2.6%

3.3%

2.3%

Alerlan MLP

-2.3%

-9.2%

-5.6%

1.1%

Bloomberg Commodity Index

-1.4%

-4.6%

-6.8%

-6.3%

Fixed Income

BofA Merrill Lynch 1-12 Municipal Bond

-0.1%

1.7%

3.1%

0.7%

Bloomberg Barclays Intermediate Government/Credit

0.1%

1.3%

2.1%

0.5%

Bloomberg Barclays High Yield Bond

0.1%

2.3%

5.0%

13.8%

JPMorgan GBI Emerging Markets Global Diversified

0.2%

4.2%

11.0%

11.8%

Market Levels

Friday

Week Ago

Year End

Year Ago

S&P 500

2,433.15

2,431.77

2,238.83

2,077.99

Dow Jones Industrial Average

21,384.28

21,271.97

19,762.60

17,733.10

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

2.16%

2.21%

2.45%

1.57%

Gold ($/oz)

$1,253.73

$1,266.76

$1,147.50

$1,303.35

Crude Oil ($/barrel)

$44.74

$45.83

$56.76

$49.39

U.S. Dollar / Euro ($/)

1.12

1.12

1.05

1.12

U.S Dollar / British Pound ($/£)

1.28

1.27

1.23

1.42

Japanese Yen / U.S. Dollar (¥/$)

110.88

110.32

116.96

104.26