Weekly Market Commentary July 24, 2017

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Earnings season is off to a good start with major indices up almost every day of the week. Additionally, the Bank of Japan’s decision to again push back the target date to reach its inflation goal and the ECB standing pat on stimulus pushed Asian and European exchanges higher. The S&P 500 rose 0.5% and our global benchmark, the MSCI ACWI, climbed 0.6%. Both indexes hit all-time records on Thursday. The Bloomberg BarCap U.S. Aggregate Bond Index increased 0.6%.

In economic news, housing stats for June came in better than expected at a 1.2 million seasonally-adjusted annual rate while the Philly Fed manufacturing index slumped to 19.5 in July from 27.6 in June. On the political front, the health care bill still could not find a majority in the Senate.

On the international front, Eurozone Final CPI edged down to 1.3%, matching the forecast and Britain’s inflation rate has fell to 2.6% in June, down from 2.9% in May. China reported better than expected GDP growth of 6.9% (6.8% expected).

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:

Why the Stock Market’s Rise Isn’t Just A Trump Rally

There are a number of key factors driving markets higher. President Trump’s pro-growth policies, which are perceived as business-friendly, are a definite positive for stocks. Other reasons include faster global growth and recent decline in the value of the dollar. Since almost 40% of S&P 500 companies’ profits come from abroad the depreciation of the dollar has sparked more demand for U.S. goods, boosting profits.

Oil Prices Aren’t Gaining Support — It’s Easy To See Why

According to the EIA report, U.S. crude supplies fell by 4.7 million barrels for the week ending July 14 on the heels of hefty declines the previous two weeks. US refineries are running flat out to meet summer demand, drawing down U.S. inventory. However the impact on oil price is not visible. The prime reason being a supply glut sustained by continued high level of production from OPEC nations as well as the U.S.

The Great Rotation May Finally Be at Hand

[Note: While many of us see equity markets as somewhat riskier than normal, this article makes some interesting points about stocks relative to bonds.]

Bets on the flow of money out of bonds and into stocks have misfired this year as low yields have kept the global debt party going. But there’s a sign markets may be on the cusp of a post-crisis shift. This year, stocks have had a higher risk-adjusted return than bonds. The trend raises the prospect of a tipping point in asset allocation in favor of equities for some investors.

Fun Story of the Week

A Censor of Very Little Brain – Winnie the Pooh and Xi Jinping

No one says anything bad about Winnie the Pooh. At least no one except the Chinese government, which censors pictures of Pooh that are shared via the internet. How did Pooh become a threat to the Chinese oligarchs? It starts with Xi Jinping’s build looking similar to Pooh. So a picture of Xi and the much thinner and taller President Obama walking becomes a picture of Pooh and Tigger walking along. So the Chinese censors are keeping their eyes open for disparaging pictures of the bear of little brain. You can never be too careful.


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