Weekly Market Commentary May 1, 2017

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Strong corporate earnings and the bounce from French elections the previous weekend pushed global markets higher. The S&P 500 climbed 1.5% for the week. The MSCI All Country World Index (ACWI), which includes U.S. and international stock markets, rose 1.9%, and the Bloomberg U.S. Aggregate Bond Index slid 0.2%. Oil prices dropped to monthly lows amid fears that U.S. shale production is rebounding too quickly.

U.S. first quarter GDP rose an anemic 0.7% as consumers reduced spending on big ticket items and spent less on home heating during the warm winter.

As part of its efforts to boost growth, the Trump administration outlined an ambitious tax reform proposal that lowers corporate rates dramatically and drops individual rates as well. Tax reform is one of the lynchpins of recent gains in equities and is ultimately positive for the U.S. corporates and businesses even if the cut does not settle at the proposed 15% rate. Internationally, both ECB and BOJ kept their base rates and stimulus plans steady.

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:

U.S. GDP Rose 0.7% in First Quarter

The weak first quarter GDP number elicited a number of responses. The average forecast was only 1.0%, but the data underperformed the already low expectations. Some cited very weak consumer spending as the major cause. Others pointed out that the seasonal adjustment factors seem to understate growth in the first quarter and growth consistently bounces back in the other three quarters.

Donald Trump’s ‘massive’ tax plan: One page, unanswered questions

The White House released its one-page outline for the much-anticipated tax plan. Trump administration has proposed cutting corporate rates from 35% to 15% to incentivize American companies to keep/move their production back home. For individuals, the new schedule proposes three brackets of 35%, 25% and 10%.

ECB leaves interest rates unchanged and bond buying intact
BOJ Rate Decision: Monetary Policy Left Unchanged Amid Higher Growth Outlook

The Central Banks of Japan and Europe chose to stand pat on interest rates and kept their stimulus plans intact. Mario Draghi reiterated the bank’s commitment to keeping or even increasing the stimulus program as long as inflation remained below the ECB’s 2% target. BOJ is expected continue QE for even longer as the bank seeks to get the economy back towards its 2% inflation target.

Oil prices are tanking, now below $49 a barrel and at a four-week low

Oil prices have come under pressure in recent weeks given the sustained supply glut due to U.S. production. More recently, Libya restarted two key oilfields further adding to the inventory buildup concerns. OPEC is scheduled to decide on whether to extend its production cuts at its meeting on May 25 in Vienna.

Fun Story of the Week

As people around the world have shown, eating healthy has become a favorite trend amongst all generations. As of late, markets have started to change in order to satisfy this need for improved nutrition (see our fun story from commentary on 4/3). Boasting the advertisement “free meat”, co-owners of Herbivorous Butcher in Minneapolis, Aubry and Kale Walch, were some of the first to take advantage of this trend. Offering meat-free “meats” like venison, bologna and pepperoni, the main ingredients in these products are yams and beets. While their advertising may have disappointed some, Ms. Walch feels that the venture was particularly successful. ‘“So many people just saw the words free meat.” Ms. Walch recalls that they rushed over to try samples—with some thinking meat was being given away and wondering whether the vital wheat gluten jerky was actually venison. “We’re getting the last laugh now.” If one of these “butcher shops” comes to your town, will you be willing to try the beet burger?


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Market Commentary: Concerns About New Covid Variant Pushed Markets Lower; Core Inflation Rose 0.4%

Concerns about the Omicron variant raised the risk of additional lockdowns and contributed to a decline of more than 2% in the S&P 500 on the day after Thanksgiving. The COVID-19 variant, first detected in South Africa, triggered travel restrictions in the U.S. and Europe.

Market Commentary: Retail Sales Rise as Supply Chain Issues Ease Ahead of Christmas Season

U.S. retail sales surprised economists, rising 1.7% in October (Figure 1). Rising prices contributed 1% to the growth, and increased purchases generated the remaining 0.7%. Both the top-line and after-inflation rates were higher than pre-pandemic levels. Supply chain risks may have prompted …

Market Commentary: Inflation Surges in October, and a Record 3% of Workforce Voluntarily Quitting

An inflation surprise created a challenge for investors. The Consumer Price Index rose 0.9% last month. The monthly increase was the largest reached in 2021, and the yearly increase of 6.2% was the largest since 1990, when the Gulf War contributed to a surge in oil prices (Figure 1).

Market Commentary: Strong Earnings and Employment Report Bring Good News for the U.S. Economy

After a couple weak monthly reports, U.S. employment roared back in October. The U.S. created 531,000 new jobs, beating expectations for 412,500. August and September were both revised higher by more than 100,000 jobs. Private payroll increased 604,000 while government payrolls shrank 73,00 …
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