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Week in Review: September 18, 2017


What's Important

Major market indices hit new highs, relieved that the U.S. avoided worst case scenario for Hurricane Irma


U.S. inflation met expectations for the first time in five months



Equity markets stayed buoyant throughout the week after the damage from Hurricane Irma was not as severe as expected. Investors shrugged off another North Korean missile test and a terrorist attack in the U.K.  All three major U.S. indices (S&P 500, Dow Jones Industrial Average and the NASDAQ) hit new records with the S&P 500 climbing 1.6%. Developed international markets continued their positive trajectory with the MSCI EAFE gaining by 0.6% and emerging markets took weak Chinese economic data in stride as the MSCI EM rose by 1.1%. 


Calmer Seas


In a reversal from last week, Treasury prices declined, pushing yields on the 10-year Treasuries above 2.2%. The decline in Treasury prices coincided with the release of positive August inflation numbers which showed slightly higher housing costs and medical care partially offset by lower airfares and vehicles prices. The core Consumer Price Index (CPI) remained 1.7% for the fourth month in a row. Low inflation creates a challenge for policy makers who are considering inflation data to help drive the schedule of coming interest rate increases. 

Central bankers in the U.K. held interest rates steady but signaled that a rate hike could be coming soon if economic data remains strong. The increasingly hawkish tone at the Bank of England caused the pound to strengthen and exacerbated the U.S. dollar’s decline. Further, industrial output in the U.S. fell by 0.9% in August, the largest drop since May 2009. While the drop is alarming, the Federal Reserve attributed 0.75% of the decline to the effects of Hurricane Harvey which temporarily halted activity for the oil and natural gas industries surrounding Houston. Related to the oil and gas disruption, oil prices held near five-month highs with Brent Crude closing above 50 dollars a barrel and West Texas Intermediary nearly at 50 dollars a barrel.1 

In emerging markets, China’s economy showed signs of deceleration. Data released on Thursday showed slowing investment in infrastructure along with disappointing factory output and retail sales. Many suspect that the slowdown in investment is a result of Beijing’s latest efforts to control the shadow banking sector and argue that the resulting pull-back in commodity prices, which are largely driven by Chinese infrastructure growth, is a healthy pause after the prices of materials such as iron ore climbed by more than 45% since June.

On the U.S. political front, President Trump continued to surprise by appearing to work with congressional Democrats on immigration legislation in return for possible Democratic support on a new tax reform framework. Although the President later denied any immigration deal, investors hoping for tax reform legislation were encouraged by the developments.

 1Bloomberg, as of 9/15/2017

Market Returns (USD)

1-Week

Quarter-to-Date

Year-to-Date

1-Year

Global Equities

MSCI All Country World

1.2%

4.7%

16.7%

19.7%

S&P 500

1.6%

3.6%

13.3%

18.9%

Dow Jones Industrial Average

2.2%

4.9%

14.7%

25.3%

NASDAQ

1.4%

5.3%

20.8%

24.2%

Russell 2000

2.3%

1.4%

6.5%

18.3%

MSCI EAFE

0.6%

4.7%

19.2%

20.4%

MSCI Emerging Markets

1.1%

9.9%

30.1%

26.8%

Hard Assets

MSCI US REIT

0.4%

2.4%

4.5%

3.1%

Alerlan MLP

1.1%

-3.2%

-5.8%

1.7%

Bloomberg Commodity Index

0.5%

3.4%

-2.1%

3.3%

Fixed Income

BofA Merrill Lynch 1-12 Municipal Bond

-0.2%

1.0%

3.5%

1.4%

Bloomberg Barclays Intermediate Government/Credit

-0.5%

0.8%

2.6%

0.8%

Bloomberg Barclays High Yield Bond

0.2%

1.5%

6.5%

9.6%

JPMorgan GBI Emerging Markets Global Diversified

-0.5%

5.2%

16.0%

10.6%

Market Levels

Friday

Week Ago

Year End

Year Ago

S&P 500

2,500.23

2,461.43

2,238.83

2,147.26

Dow Jones Industrial Average

22,268.34

21,797.79

19,762.6

18,212.48

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

2.20%

2.06%

2.45%

1.71%

Gold ($/oz)

$1,320.18

$1,346.59

$1,147.50

$1,314.75

Crude Oil ($/barrel)

$49.89

$47.48

$57.03

$49.57

U.S. Dollar / Euro ($/)

1.19

1.20

1.05

1.12

U.S Dollar / British Pound ($/£)

1.36

1.32

1.23

1.32

Japanese Yen / U.S. Dollar (¥/$)

110.83

107.84

116.96

102.10