Market Digest – Week Ending 1/20/2017
It was a relatively boring week for stocks, with both U.S. and international markets slightly down by end of day Friday. Gold was one of the few asset classes to end in positive territory. Much of the news surrounded Trump and his highly anticipated presidential inauguration. His speech took a somewhat sharp tone that echoed his campaign trail rhetoric as he promised sweeping change. Regardless, the clock is now officially ticking.
S&P 500: 2,271 (-0.1%)
FTSE All-World ex-US: (-0.4%)
US 10 Year Treasury Yield: 2.46% (+0.06%)
Gold: $1,207 (+0.8%)
USD/EUR: $1.069 (+0.5%)
- Monday – Martin Luther King Jr. Day
- Tuesday – China’s President Xi Jinping spoke at the World Economic Forum, surprising some with his strong defense of globalization in the face of Trump’s protectionist rhetoric
- Wednesday – The U.S. consumer-price index, a broad measure of inflation, increased more than 2% in the month of December for the first time in multiple years
- Thursday – U.S. housing starts rose 11.3% in December to their highest level in nine years
- Thursday – U.S. jobless claims came in better than expected, with one measure falling to the lowest level in four decades
- Friday – Donald Trump was inaugurated as the 45th President of the United States
Its official, Donald Trump is now sworn in as the 45th President of the United States of America. The impact on markets has been interesting to watch. Since the election, the financials sector has rallied on the premise that Trump’s “pro-growth” policies will bolster the economy and push interest rates higher. Some of the other economically sensitive sectors like industrials and consumer cyclicals have also performed well, while more defensive sectors like utilities and consumer staples underperformed.
I guess this makes sense, particularly if you believe Trump will spur domestic growth. But if you break up the data, it appears a number of these trends have already begun to reverse. Year to date (2017 only), financials is now one of the worst performing sectors, while technology and healthcare are two of the best (both previously underperformed following the election).
Perhaps more interesting is the reversal in international stocks and gold. Following Trump’s win, foreign stocks, particularly emerging markets, significantly lagged their U.S. counterparts. Yet in 2017 they are leading the way by a sizable margin. This is despite Trump’s possible import tax on foreign goods. The same holds true for gold, which as a more “defensive” asset sold off sharply following the election; it is now the top performing major asset category this year.
So what gives? Have investors digested Trump’s rhetoric and determined it was more hype than substance? There may be some element of this, but as we’ve noted before, it’s simply too early to tell. He’s only been president for a matter of hours. Right now investors are guessing on imperfect information, and until Trump puts forth legitimate policy agendas, there’s no way to be sure of his impact on the market.
What we do know is this: the U.S. economy continues to show positive signs. The four-week moving average of jobless claims just hit the lowest level since 1973. As of December, the unemployment rate stood at a measly 4.7%. Last year, U.S. housing starts hit the highest level since 2007. And despite potential increases, interest rates remain at historically low levels.
Does this mean U.S. stocks should outperform? Not necessarily. As we pointed out in our recent Market Recap, valuations look much more favorable on the international side. And all this positive domestic data could be fueling an environment of lofty expectations. In a recent Wall Street Journal survey of economists, almost two-thirds of respondents said risk to U.S. economic growth is to the upside, not downside. So there’s a chance this sentiment is already embedding itself in equity prices, making it more difficult for US stocks to beat expectations over coming quarters.
Only time will tell whether this is the beginning of a longer term trend for international, but we always suggest investors remain globally diversified.