Investor Insights: April 2017

By Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA Chief Investment Officer

See our recap of March's key statistics and market commentary to help guide your investment decisions. 

Noteworthy Numbers

8-1.pngDuring the month of March, the Dow Jones Industrial Average fell eight consecutive days during the month of March, the longest streak since 2011. During the losing streak, the Dow only fell by 1.6 percent compared to the 2011 streak which lost 7 percent.

2.1percent.pngThe final reading of the U.S. Gross Domestic Product (GDP) for the fourth quarter was an annualized 2.1 percent. The reading was revised up from the last preliminary reading of 1.9 percent. Consumer spending, which accounts for around two-thirds of U.S. economic activity was revised up to 3.5 percent growth, after reporting 3.0 percent growth earlier in the quarter.

2.40percent.pngThe yield on the 10-year Treasury note closed the month at 2.40 percent. The yield hit its quarterly closing high on March 13 at 2.61 percent, two days prior to the Federal Reserve’s Committee meeting when they decided to raise the federal funds rate by 25 basis points. Since the Fed raised the short-term rates, the 10-year Treasury has traded lower.

Our Take

Once again the market has been mostly driven by Trump’s agenda, but the mood is starkly different from a month ago. President Trump’s first main agenda item, repealing and replacing Obamacare, failed miserably as Speaker of the House Ryan and President Trump failed to get the required votes to pass the legislation. The main obstacle came from a group of Republicans, known as the Freedom Caucus, that would not get on board with the bill. The failure brought to light the possibility that Trump may not be able to move his agenda forward as effectively as many investors had hoped.

The President has appeared to be willing to put the Health Care debate on hold for now and move on to the next priority, which many believe will be tax reform. Passing meaningful tax reform will be a challenge which may cause a change in priority. Some believe an infrastructure spending bill will be easier to pass, due to bipartisan support for the issue, and could provide some positive news around an administration that carries a historically low approval rating this early in a first term. As the month came to a close, rumors began to surface about a $1 trillion spending bill that may be introduced shortly.

The Fed, which is probably glad to no longer be the main driver of market returns, announced it would raise the federal funds rate by 25 basis points. The target federal funds rate is now between ¾ and 1 percent. The Fed continues to see strength in the labor market and has seen economic activity expand at a moderate pace. The committee is sticking to their wait-and-see approach; however, the consensus is still calling for two additional rate hikes this year. Some Fed officials are beginning to discuss the possibility of shrinking the Fed's balance sheet later this year. The first adjustment could come in the form of letting maturing bonds “roll off” of the balance sheet as opposed to reinvesting which is the current policy. This, in addition to increasing interest rates, will effectively serve as tightening of monetary policy.

Britain officially triggered its exit from the European Union in March when it formally delivered a letter invoking Article 50 of the Treaty of Lisbon. This begins the legal process that must end in two years with Britain leaving the EU. British Prime Minister Theresa May announced there is no turning back now. There is a lot of work to be done to ensure a smooth transition, and it will be complicated. The EU will not make this too easy on Britain as they hope to deter others from leaving in the future, but given the close ties and proximity to each other, both sides are expected to be cordial.

Oil prices traded lower for much of the month but began to stabilize late in the month after an OPEC meeting that resulted in a recommendation for a six-month extension on production cuts. Low oil prices are good for the consumer, but oil prices that are too low cause U.S. oil companies to limit or stop production, resulting in credit concerns and job losses.

Despite the concerns around the Trump agenda, Fed rate hikes and the reality of Britain leaving the EU, the Nasdaq managed to finish the month at all-time highs. The Nasdaq had a 10.13 percent return for the quarter. The Dow finished the month slightly negative which was its first negative month since October. The S&P 500 finished the month slightly positive and is up over 6 percent during the first quarter. Generally speaking, international markets outperformed U.S. markets for the month and for the quarter. The MSCI EAFE, a proxy for developed international markets, returned 2.75 percent for the month and is positive by over 7 percent for the quarter. The emerging markets category returned 2.52 percent for the month and is up an impressive 11.45 percent for the quarter.

April kicks off the earnings season for the first quarter of 2017. While investors keep a wary eye on President Trump, they will also be looking to corporate earnings to reaffirm the strength of the U.S. economy and provide rationale for the continuing bull market.

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