Weekly Market Commentary December 26, 2017

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Stocks continued their winning ways last week. The S&P 500 rose 0.3% and is now up 1.4% for the month. The MSCI ACWI rose 1.1% as global stocks rallied. The Bloomberg BarCap Aggregate Bond Index dropped 0.6% on concerns that tax reform would push interest rates higher.

Performance Insights

Sector allocations are making a big difference in 2017. Information technology, the top performing sector, is almost 15% ahead of the number two sector, health care. On the other hand, energy and telecom services have both declined more than 5% this year. We encourage investors to be careful of extrapolating those trends into the New Year.

Key points for the week

  • Consumer spending beat expectations in November and inflation remains low.
  • Chile and South Africa are experiencing political changes, which have been viewed favorably by investors.
  • Boeing is in talks with a Brazilian company as airline trends shift.

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.

US personal income rose 0.3% in Nov, vs 0.4% increase expected

U.S. consumer spending increased in November but is unlikely to grow at the same pace as savings dropped to their lowest levels in more than nine years. Core PCE (personal consumption expenditures), a measure of inflation that excludes food and energy, increased by 0.1% in November. This increased overall inflation to just 1.5 percent, short of the Federal Reserve target of 2%. The pairing of wage growth (0.4%) and low inflation explains the high consumer spending and low savings numbers.

Sebastian Pinera easily wins Chile election & Ramaphosa Lacks Majority in Top Body of South Africa’s ANC

Chile and South Africa are making political changes designed to improve business conditions. Chile elected a more market-friendly former president, while South Africa’s ruling party is attempting to replace its corruption-plagued president. We are particularly hopeful for improvements in South Africa, which has been on our list of top emerging market risks. The news from South Africa has been viewed favorably by investors as the Santiago Stock Exchange increased by 6.9% after the election and South Africa’s currency appreciated against the U.S. dollar.

Farewell to the Boeing 747

A shift in the airline industry to focus on fuel-efficient aircrafts has pushed the executives at Boeing to rethink their business model. Boeing is now in talks with Embraer, a Brazilian company, on an outright buyout of the manufacturer’s small regional jets. This would restructure Boeing’s products to make them more competitive. The move reinforces our focus on international exposure as quality international stocks look attractive relative to their U.S. counterparts.

Fun story of the week

Long Island Iced Tea Soars After Changing Its Name

Cryptocurrencies have become a major craze among investors, with currencies such as Bitcoin and Bitcoin Cash exponentially appreciating in a short amount of time. This phenomenon is taking some strange turns as investors seek the next “Bitcoin.” In particular, a company formerly known as Long Island Iced Tea Corp. recently changed its name to Long Blockchain. Its stock price jumped from $2 to $16 in an hour, a 289% appreciation. Be wise.


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