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The following are excerpts from the most recent monthly “Investment Insights” report, produced by the Global Investment Management team. For the full report, click here.
Market strategy: Soft and steady
Investors have closed the books on April and added yet another month to the S&P 500’s bull market run, which has now reached 98 months. It was a truly resilient climb and a slight surprise given that the first quarter GDP report came in a bit softer than expected.
The U.S. economy grew at a rate of 0.7%. While sluggish, the Fed has considered the weakness to be transitory in nature and was more than likely a hangover from the consumer due to the abundant spending in the fourth quarter of last year. Forecasts for next quarter are promising with the Atlanta Fed’s GDPNow model estimating 3.6% growth; the Fed forecasts overall growth in 2017 to be 2.1%.
Overall the fundamental elements of the economy are doing decently well, though a bit soft in the first quarter. The market is performing well, but perhaps a bit hotter than what investors expected at the beginning of the year. Internationally, Europe continues to be a reasonable bright spot, particularly based on the conclusion of the French presidential election. However, risks from the U.K.’s exit process, a slowing in China, and further geopolitical events could dampen expectations in foreign markets. Our team is closely monitoring the U.S. government arena as further attempts to reform taxes and implement infrastructure spending are brought to light.
Equities: Vive la France
Global stock markets churned during the month of April alongside the ebb and flow of geopolitical risks around the world. Domestic investors seemed to be grappling with headlines as U.S. corporate earnings numbers brightened, while risk of military conflict with North Korea and European elections caused uncertainty. The S&P 500 Index lost over 1% in the first half of the month before jumping higher as tensions regarding the Korean peninsula abated and French election forecasts reflected a compelling lead for the centrist candidate; the gauge ended the month up 1.03%.
European stock markets seemed to be similarly relieved after losing ground earlier, jumping 3.54% after the first round of polling results and ending April 3.74% higher, in U.S. dollar terms, according to the MSCI Europe Index. Similar data from MSCI showed emerging markets gaining 2.21% for the period. Foreign stocks outperformed their U.S. counterparts in April, but earnings could push domestic prices higher.
Fixed income: The world’s largest bond portfolio
Minutes released from Federal Reserve meetings and global risks subsiding caused bond markets to fluctuate in April. The Barclays U.S. Universal Bond Index, which attempts to broadly represent the U.S. bond market, bounced around over the month, reaching a gain of over 1% before ending the period up 83 basis points. Uncertainty over possible military conflict with North Korea and the French election pushed investors toward safe-haven assets during the period. The yield of the 10-year Treasury has remained range-bound around 2.4% so far this year, but climbed to over 2.6% in March before tumbling to 2.2% in mid-April; the benchmark yield ended the month back at 2.40%. The Federal Reserve may have hit a pivotal point in normalizing its extraordinary policies that were put in place in the years following the Great Recession.
Read more of the “Investment Insights” report from April 2017.
Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.
Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.
International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.
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