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ECONOMIC FLASH – Markets Reassess Outlook for Tax & Regulatory Reform

April 2017

US Economy: Will optimism lead to more spending?

US consumer confidence hit new highs but optimism hasn’t yet led to a spike in actual consumer spending (+0.1% in Feb). GDP for 4th quarter 2016 was better-than-expected at 2.1%.

US Stocks: Financials create a drag.

US equities finished flat, pulled down by the financial sector as the outlook for reduced regulation and corporate tax cuts in 2017 became less clear.

Foreign Stocks: Eurozone perks up.

The Eurozone reported the highest growth rate in six years, along with stronger manufacturing. Eurozone stocks rose 6% in March and investors are now looking to see if the European Central Bank will curtail stimulus measures.

Fixed Income: US yield curve flattens.

The Federal Reserve raised its target interest rate, but longer-term Treasury yields didn’t follow; the yield on 10-year T-bonds finished March where it began, at 2.4%.

Non-Traditional: Issues with low volatility.

Equity market volatility averaged just 11.7 in 1st quarter 2017, the lowest level in 10 years, frustrating hedge fund strategies that benefit from higher volatility.


Congress’ failure to pass healthcare reform suggests some of the President’s pro-growth initiatives may be more difficult to enact than anticipated. While we believe the US economy is on stable footing, we find many foreign markets less expensive, with similar or higher growth prospects. Our international allocations have been additive to portfolios so far in 2017.

Because equity valuations are above historical levels globally and fixed-income markets face the prospect of US interest rate increases, there are few easy decisions for investors. We continue to stress the importance of diversification across asset classes, including the addition of alternative assets such as hedge funds, which may find unique opportunities in such an environment.

Glossary and Disclaimer for Economic Flash

Equities Total Return

U.S. Large Cap 0.1% 6.1% 17.2%
U.S. Small Cap 0.1% 2.5% 26.2%
U.S. Growth 1.2% 8.6% 16.3%
U.S. Value (1.0%) 3.0% 20.0%
Int’l Developed 2.9% 7.4% 12.2%
Emerging Markets 2.5% 11.5% 17.7%

Fixed Income Total Return

U.S. Agg. Bond (0.1%) 0.8% 0.4%
TIPS (0.1%) 1.3% 1.5%
U.S. High Yield (0.2%) 2.7% 16.9%
Int’l Developed 0.2% 2.3% (4.3%)
Emerging Markets 1.2% 4.2% 0.9%
Intermediate Munis (0.0%) 1.7% 0.2%
Munis Broad Mkt 0.2% 1.4% 0.2%

Non-Traditional Assets Total Return

Commodities (2.7%) (2.3%) 8.7%
REITs (1.6%) 2.5% 5.3%
Hedge Funds
Absolute Return 0.3% 0.7% 1.6%
Overall HF Market 0.0% 1.7% 6.2%
Managed Futures (0.8%) 0.3% (6.3%)

Economic Indicators

MAR-17 DEC-16 MAR-16
Equity Volatility 12.4 14.0 14.0
Implied Inflation 2.0% 2.0% 1.6%
Gold Spot $/OZ $1249 $1152 $1233
Oil ($/BBL) $53 $57 $40
U.S. Dollar Index 94.7 95.4 91.4