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The Hidden Risk in Investment Portfolios

Weekly Commentary, March 31st, 2017

 

Summary

  • Equity markets were positive across the globe with U.S. stocks (S&P 500) up 0.80% and international stocks (EAFE) up 0.24%

  • Fixed income markets were also positive with investment grade bonds (AGG) up 0.12% and high yield bonds (JNK) up 1.07%

  • The Fed – In multiple speeches this week members of the Fed reiterated that they believe the U.S. economy is on track to have further rate hikes in 2017. Former Federal Reserve Bank of Atlanta President Lockhart also stated “The committee is pretty solidly optimistic about the outlook for at least the medium term, and that would be the continuation of a moderate pace of growth.”

  • Eurozone strength – After a few tough years “the Eurozone ship” appears to be turning around, which we mentioned last week has been a topic among many top analysts. Europe (FEZ) finished the quarter up 5.5%, for its best quarter in two years. The region’s PMI, including business activity and hiring, surged higher to 56.7, for the best quarterly reading in six years.

  • Asian Region strength – Similarly data is improving in key economies in Asia. Chinese Manufacturing PMI (activity) increased to 51.8, and Industrial profits soared +31.5%, signaling improved growth for an important global economy. Japan’s PMI came in at 52.6 for March, which means it has now remained above 50 for seven months and posted its best average quarter since 2014. With strong new orders, and purchasing activity on top of backed up work orders—it would appear these trends should continue in April.

  • Brexit – the U.K. formally invoked the Article 50 clause to begin the two-year process of leaving the EU.

  • ECB Rates – With the region’s inflation coming in at only 1.5% vs. expectations of 1.8% and a stated goal of 2%, there is further reason to believe the ECB will keep rates low, in addition to Reuter’s report from sources “in or close to the (ECB) Governing Council” suggesting that rate hikes are still some time off.

  • Commentary: Bucking the historical trend, the S&P 500 has been outpacing most other asset classes, as well as more diversified portfolios. We’ll take a look at whether this means investors should abandon diversification and what historically comes next after such periods.

 

To read the full commentary, click below! 

Weekly Commentary

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