Market Recap – Interest Rates & Politics Across Europe

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Market Digest – Week Ending 3/24/2017
The Fed returned to the spotlight this week, raising short-term interest rates by 0.25% as was widely expected. While highly subject to change, forward-looking statements implied the Fed intends to stick with a previously articulated schedule of three total hikes for 2017. Many expected language suggesting faster tightening, leading to a decline in interest rates and the dollar. Stocks were relatively flat. International stocks outperformed, largely driven by currency. In a reversal of the trend so far this year, the biggest stocks lagged while small caps made up ground. Election results in the Netherlands pointed to slowing momentum for populist leaders.

Weekly Returns:
S&P 500: 2,378 (+0.2%)
FTSE All-World ex-US: (+2.2%)
US 10 Year Treasury Yield: 2.50% (-0.07%)
Gold: $1,229 (+2.0%)
USD/EUR: $1.074 (+0.7%)

Major Events:

  • Tuesday – Intel announced at $15 billion acquisition of Israeli Mobileye, a leader in vehicle automation technology
  • Wednesday – High-speed trading firm Virtu offered to acquire rival KCG Holdings for about $1.3 billion
  • Wednesday – The Fed raised short term interest rates by 0.25% and suggested it remains on track for two more hikes this year
  • Thursday – Peabody Energy, the world’s largest private coal producer, said it expects to exit bankruptcy in April pending a plan to restructure debt
  • Thursday – Geert Wilders’ far right party won 20 seats in an election of the Netherlands, fewer than had been expected
  • Thursday – The SEC said indicated it is likely to reduce settlement periods for common equities from three days to two
  • Thursday – Trump released his first budget blueprint, outlining increases to defense spending and cuts to most agencies including steep cuts to the EPA and State Department
  • Friday – U.S. Secretary of State Rex Tillerson said military action would be “on the table” against North Korea if it threatens South Korean or U.S. interests
  • Friday – The Justice Department filed a case arguing the structure of the Consumer Financial Protection Bureau is unconstitutional

Our take:
The Netherlands was first to the polls in a series of important 2017 elections in Europe. Prime Minister Mark Rutte’s center-right party emerged with more support than expected while far right candidate Geert Wilders’ party had less than was expected.

Even as Great Britain moves toward exiting the EU, the result provided a relief for traditional supporters of the EU and of globalism in general. Still, the surge of support for isolationist views is far from over. Much of the focus has so far been on French elections to be held in April and Germany in September. Like the UK, the United States and the Netherlands, the outcome is impossible to predict and the polls are highly unreliable. Equity markets had a modest positive initial reaction to the Dutch election, but as we’ve seen with recent outcomes, market reaction is fickle and also hard to predict.

Whatever happens in France, the fate of the EU and the direction of Europe in general will be decided over multiple years and will depend on many variables. The Greek debt crisis, which has been dormant for a couple of years, is not yet solved. If you are a supporter of the EU, it was a good week, but the longer trend still suggests turbulence.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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