Posted on March 20, 2017

Weekly Market Commentary March 20, 2017

Market Commentary

After a quiet beginning to the week, the markets reacted to the expected interest rate hike with stocks soaring and Treasury yields falling. According to the meeting, the Fed’s stance on further rate hikes has changed, taking on a more dovish stance with no more than two additional rate increases this year. Chair Yellen noted that future rate hikes will be gradual and signaled in advance. Even so, the markets were hit with concerns over crude oil supply, as well as President Trump’s budget blueprint, which proposes steep cuts in many domestic programs. In other news, the U.S. inflation figures came in better than expected at 2.2% versus 2.0% forecasted, but it seemed to have been already price-in by the markets with the Dow Jones Industrial Average ending the week roughly flat at 0.06%. Both the NASDAQ Composite and the S&P 500 outperformed the Blue Chip Index, with returns of 0.67% and 0.24%, respectively.

Internationally, stock markets across Europe soared on a relief rally as Dutch Prime Minister, Mark Rutte, defeated the populist Geert Wilders. The defeat comes as a huge boost to the European Union as it is dealing with a tide of nationalist sentiment threating the Eurozone and its economy. Adding to the upbeat mood was the U.S. Fed’s more dovish guidance on future rate hikes which buoyed markets international markets further. Regardless, political risk is high in the region with upcoming French elections and a second Scottish independence referendum expected right in the middle of Brexit negotiations.

What are we reading?

Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:

Federal Reserve Hikes Interest Rates a Quarter Point

The Fed raised its U.S. interest rate target to 0.75% – 1.0% while signaling two more rate hikes this year. This was the Fed’s third rate hike since the 2008 financial crisis. Given the current economic numbers which point at an improving economy and inflation almost at the target mark, the committee is moving away from a more hawkish tone.

Saudi Arabia and U.S. Inventories Pressure Crude Oil Prices

In the past week, oil prices slumped by more than 7.5% to less than $52 a barrel. The price decline is being attributed to an unexpected surge in U.S. inventories, putting them at record levels over the past few weeks. For context, onshore drilling activity in the U.S. has doubled since its low point of May last year. Additionally, in its latest report, Saudi Arabia disclosed that it has increased production in the last month for the purpose of re-stocking. In general, the level of compliance with OPEC’s agreement to cut production has been strong but has yet to have the desired effect because of the rebound in U.S. shale oil production.

Trump’s ‘hard power budget’ increases defense spending, cuts to State Dept, EPA

On Thursday, President Trump unveiled a $1.1 trillion-dollar budget framework that significantly slashes non-defense discretionary spending while proposing a $54 billion surge in defense spending for new aircraft, ships and weapons systems. The State Department, Environmental Protection Agency and others could see significant budget decreases if approved.

Nicola Sturgeon calls for 2nd Scottish independence referendum

Scottish National Party (SNP) leader Nicola Sturgeon announced that she is introducing a vote to the Scottish Parliament for a second Scottish Independence referendum. While the referendum was largely expected, it came much sooner than anticipated. Sturgeon envisions holding the vote sometime between Fall 2018 and Spring of 2019, right in the middle of Britain’s negotiations to leave the European Union.

Fun Story of the Week

Over the past five years, people have used the internet and social media to the point that the data they have created would easily exceed the storage capacity of traditional devices such as hard drives, optical discs, etc. As a result, researchers have been tasked with finding a new, more efficient way of storing data. In an effort to manage the issue, analysts from Columbia University and the New York Genome Project have found a way to store and retrieve a 122-year old French movie, an entire computer operating system and a $50 Amazon gift card, all in a single drop of DNA. This new development shows that DNA can hold a significantly higher amount of data than previously thought. Harvard University geneticist George Church said, “Their big achievement is demonstrating high data density—in this case 215 petabytes per gram of DNA.” To capture the magnitude of this discovery, here is an eye-opening example. Given the efficiency of the test, a DNA storage system such as the one discussed above could reduce the entire Library of Congress to a small cube of DNA crystals or a genetic liquid. With concentrated data like this, it would be possible to copy data, error free, as many times as you wanted.