Week in Review


Week in Review: November 13, 2017
 

Equity markets, both domestic and international, put in a rare negative week. The S&P 500 ended the week down -0.1%, while the MSCI EAFE index fell -0.4%. The MSCI EM index managed to climb 0.2%. Fixed income was down as well sending the U.S. 10 Year Treasury Yield higher.


The Simplified Tax Proposal is Very Complicated


Although the Senate Republican’s tax proposal has some similarities to that of the House Republicans, it differed on a number of key points.  Both groups propose steep tax cuts but disagree on many of the new revenue sources to offset it. Importantly, to pass legislation by simple majority, the final bill must not add exceed $1.5 trillion in spending and not add to the deficit after year 10. The current proposals are very close to these limits, even over by some analysts.  Therefore, the Republicans will need to work through the differences.

The bigger-ticket issues are:  the timing of when the 20% corporate tax rate would go into effect, taxation of pass through income, the elimination of popular deductions, such as state and local tax deductions (SALT), medical expenses, mortgage interest and lastly, the number of individual brackets and their specific rates.   Republicans are endeavoring to finalize the new legislation before year-end. 

Both versions of the tax reform bill have a mixed bag of implications to the municipal bond market. The House proposes to eliminate two types of bonds—Private Activity Bonds (PAB) and advance refunding bonds—and issuance of these types has spiked in the fourth quarter. The Senate bill does not propose eliminating PAB.  Both the Senate and House proposed to eliminate SALT deductions, which is expected to boost demand for municipal bonds. 

West Texas Intermediate (WTI) oil reached a high of $57.35, a level that represents a move of +34.9% from its year-to-date low reached back in June ($42.35). Both WTI oil and its international counterpart Brent Crude traded near their highest prices in nearly two and a half years. While the immediate catalyst for the recent spike was a wave of high profile arrests in Saudi Arabia that ratcheted up Middle Eastern tensions, the majority of the rise thus far has been due to fundamental, technical and macro factors against a backdrop of poor sentiment and net short positioning.

Overseas, President Trump embarked on his tour of five Asian countries with stops in South Korea, China, Japan, Vietnam and the Philippines. While in Vietnam, President Trump participated in the Asia-Pacific Cooperation (APEC) Economic Leaders meeting and reiterated the stance of the U.S. seeking bilateral trade deals instead of accepting multilateral pacts like the Trans-Pacific Partnership.

Market Returns (USD)

1-Week

Quarter-to-Date

Year-to-Date

1-Year

Global Equities

MSCI All Country World

-0.2%

2.4%

20.0%

23.3%

S&P 500

-0.1%

2.7%

17.3%

21.6%

Dow Jones Industrial Average

-0.4%

4.8%

21.0%

27.6%

NASDAQ

-0.1%

4.0%

26.6%

31.1%

Russell 2000

-1.3%

-1.0%

9.9%

19.4%

MSCI EAFE

-0.4%

1.4%

21.7%

24.7%

MSCI Emerging Markets

0.2%

4.4%

33.4%

31.8%

Hard Assets

MSCI US REIT

2.1%

2.1%

4.8%

12.8%

Alerlan MLP

0.2%

-3.7%

-9.1%

-4.1%

Bloomberg Commodity Index

0.5%

3.5%

0.5%

5.0%

Fixed Income

BofA Merrill Lynch Municipals 1-10 Year A-AAA 

-0.1%

-0.1%

3.0%

1.6%

Bloomberg Barclays Intermediate Government/Credit

-0.2%

-0.2%

2.1%

1.2%

Bloomberg Barclays High Yield Bond

-0.8%

-0.4%

6.6%

9.1%

JPMorgan GBI Emerging Markets Global Diversified

0.5%

-3.0%

10.9%

10.3%

Market Levels

Friday

Week Ago

Year End

Year Ago

S&P 500

2,582.30

2,587.84

2,238.83

2,167.48

Dow Jones Industrial Average

23,422.21

23,539.19

19,762.60

18,807.88

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

2.40%

2.34%

2.45%

2.15%

Gold ($/oz)

$1,275.07

$1,269.91

$1,147.50

$1,259.20

Crude Oil ($/barrel)

$56.74

$55.64

$57.06

$50.19

U.S. Dollar / Euro ($/)

1.17

1.16

1.05

1.09

U.S Dollar / British Pound ($/£)

1.32

1.31

1.23

1.26

Japanese Yen / U.S. Dollar (¥/$)

113.53

114.07

116.96

106.83