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How Markets Fared in the First Third of 2017

Last update on: Jul 19 2021

We put the first third of 2017 behind us at the end of April and we now should take a look at how the different markets fared that month and so far this year.

The big story was the U.S. dollar. You might remember that after the election in 2016, the dollar rose sharply. Investors strongly favored U.S. markets and were optimistic about economic growth, which raised the dollar’s value.

However, that trend reversed at the start of the year. As you’ll see in the numbers below, the dollar is down sharply in 2017.

I don’t think that’s because most investors have concerns about the U.S. economy. It’s partly because investors overreacted after the election, assuming that certain policy proposals would become law quickly and influence the economy.

Once it became clear the process would take longer than expected, some investors scaled back their positions. Others took profits after the sharp post-election rally.

More importantly, however, I think investors started to notice improving conditions outside the United States. They reallocated some money to overseas markets. In fact, we saw that not only in the dollar’s performance, but also in the steady gains in overseas stock markets, which you’ll also see in the data below. The U.S. markets performed in line with overseas markets in April, but the non-U.S. markets still are ahead for 2017.

The S&P 500 rose 1.22% in April and was up 7.12% for the year. The Dow Jones Industrial Average returned 1.25% in April and 6.65% for the year to date. The Russell 2000 rose 2.54% for the month but only 3.61% for the year so far.

The All-Country World Index rose 1.29% in April and 8.51% for the year to date. Emerging market stocks only returned 0.93% for the month but still are the standout performer for the first third of the year with a gain of 13.70%.

For fixed-income investors, long-term treasury bonds showed a recovery in April. The long-term treasury bonds notched a 1.49% return in April and are up 2.99% for 2017. Investment-grade bonds rose 1.33% for the month and 2.41% so far for the year.

Treasury Inflation-Protected Securities (TIPS) gained 0.78% for April and 1.80% for the first third of 2017. High-yield bonds earned 1.84% for April and 3.25% for the year’s first four months.

The U.S. dollar dipped 0.65% during April and has fallen 3.25% for the first third of the year.

Other than gold, commodities generally had a tough month during April. Energy-based commodities lost 0.28% during that month and 7.43% through the year’s first four months. Broader-based commodities lost 1.19% in April and 4.58% for the first third of 2017. The good news came from gold, which rose 0.66% for April and is up 9.14% for the first third of the year.

The Data

We’re starting to receive some mixed signals from the manufacturing sector.

The Kansas City Fed Manufacturing Index was positive at 7, but that’s down from 20 the previous month. The index looks disappointing this month, primarily because the previous month’s reading was the highest in six years.

The ISM Manufacturing Index indicates solid growth at 54.8, but it is down from last month’s 57.2. The index also was below expectations for the first time in six months.

The PMI Manufacturing Index was down to 52.8 from 53.3, but it met expectations. This measure has been weaker than other manufacturing measures recently.

Factory Orders rose a disappointing 0.2%. That’s well below last month’s 1.2% increase and beneath expectations. It is also the weakest number in four months. The good news in the report is that core business investment increased a healthy 0.5% to mark the highest increase since December.

In addition, the nonmanufacturing sector of the economy continues to grow.

The PMI Services Index, which has been the weaker of the two major services indexes, rose to 53.1 from 52.8. That indicates growth, but not strong growth. Also, several components of the index were weak. For example, hiring growth was the worst in seven years.

The ISM Nonmanufacturing Index, however, jumped to 57.5 from 55.2. The improvements were broad-based, though hiring also was weak in this report.

The Chicago Purchasing Managers Index indicated strong and increasing growth in the Chicago area. The measure rose to 58.3 from 57.7.

Personal Income growth slowed in the latest month to an increase of only 0.2%. That’s below expectations a little and below the solid growth of recent months. Consumer spending didn’t increase at all, but the savings rate rose to 5.9%.

In another surprise, the Core PCE Price Index, the Fed’s preferred measure of inflation, declined by 0.1%. That brings the 12-month figure to 1.6%, under the Fed’s target.

Productivity took another hit in the last quarter. It declined 0.6%, though the previous quarter’s productivity was revised higher to a 1.8% increase. Output rose 1% while hours worked climbed 1.6%, showing that workers are producing at a slower rate. This is partly due to low investment in new equipment and partly to a mismatch between worker skills and those needed for their jobs.

The labor data leading to tomorrow’s widely-followed Employment Situation reports is mixed. As I said above, both the PMI and ISM indexes for the nonmanufacturing sector indicated hiring was weak last month. Also, the ADP Employment Report found 177,000 private sector jobs were created during the month. That’s a solid number, but well below the 250,000 or so of the last three months.

New unemployment claims dropped a significant 19,000, more than erasing last week’s 14,000 increase. We’re not at the historic lows of late February, but we are very close.

Consumer Sentiment, as measured by the University of Michigan, increased a little to 97.0 from 96.0, though the midmonth flash reading was 98.0. The measure remains near the highs of the recovery.

Last Friday’s gross domestic product (GDP) report was viewed widely as disappointing. It registered only 0.7% growth for the first quarter. Longtime readers know I don’t pay much attention to this report. It is based on estimates and revised, often significantly, over time.

Also, the GDP is backward-looking. We already know what the first quarter was like before the report comes out. Another major problem with the GDP report is that inventory can affect it greatly from quarter to quarter. But inventory fluctuations tend to wash out over time and don’t reflect real economic activity. Also, in recent years, the first-quarter data often has been weaker than the rest of the year.

I think the other first-quarter data we received indicated the economy was doing a bit better than the GDP report would lead us to believe. The economy was slower than in the fourth quarter of 2016, but it continued growing at a steady pace and is likely to maintain or increase that pace as the year goes on.

The Markets

The S&P 500 returned only 0.03% for the week ended with Wednesday’s close. The Dow Jones Industrial Average lost 0.08%. The Russell 2000 tumbled 1.99%. The All-Country World Index gained 0.17%. Emerging market equities rose 0.60%.

Long-term treasuries gained 0.32%. Investment-grade bonds rose 0.24%. Treasury Inflation-Protected Securities (TIPS) lost 0.27% but high-yield bonds rose 0.24%.

The U.S. dollar rose 0.19%.

Energy-based commodities fell 1.04%, while broader-based commodities lost 0.24%. Even though gold rose in April, it dropped 0.91% in the past week.

Bob’s News & Updates

Do your heirs know how to handle an inherited IRA? If not, they’ll join the long list of heirs who made simple mistakes that triggered additional taxes and penalties. To avoid this result, be sure your heirs have a copy of Bob Carlson’s Guide to Inheriting IRAs.

Do you have a Medigap plan to go along with traditional Medicare? Did you know that one major medical event can more than wipe out years of savings from not paying Medigap premiums? Which is the best Medigap plan for you? Learn more in the revised edition of “The New Rules of Retirement”

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