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ECONOMIC FLASH – Equities Could Have More Room to Run

May 2017

US Economy: Weak Q1 growth an aberration?

Q1 US GDP growth at 0.7% marked the weakest pace in 3 years, with seasonality partly to blame. While growth in consumer spending hasn’t yet matched consumer confidence, recent pickup in business investment could be a tailwind.

US Stocks: Tech, consumer stocks outperform.

The technology (+2.5%) and consumer (+2.6%) sectors were boosted by 1st quarter results, including Google’s 53% jump in advertising revenue and Amazon’s 39% earnings growth.

Foreign Stocks: Eurozone leads the way.

Europe drove results in developed markets with Europe ex-UK up 4.3% in April, on strong earnings, economic growth and optimism over French election results. UK equities lagged on anticipation that a stronger pound would hamper earnings.

Fixed Income: High-yield spreads tighten.

Rising expectations for global growth have supported demand for riskier fixed-income assets, including emerging markets and high yield corporate bonds, which trade at lofty valuations.

Non-Traditional: Oil falls on US production.

Rising US oil production has been a headwind to oil prices, as increases in the commodity’s price are quickly offset by increases in the US rig count.


Congress’ focus on healthcare reform and financial deregulation suggests that tax reform, a primary driver of anticipated US growth, may not happen until 2018. That said, we continue to believe the US economy is on stable footing and expect that near full employment and stronger estimated Q2 growth may propel the equity markets higher in the second half of the year.

We continue to find many foreign markets more attractive than the US, with strong underlying economic fundamentals, including in Europe. The election of centrist Emmanuel Macron as France’s President has removed one potential threat to European stability, which bolsters our positive outlook on the region.

Glossary and Disclaimer for Economic Flash

Equities Total Return

U.S. Large Cap 1.0% 7.2% 17.9%
U.S. Small Cap 1.1% 3.6% 25.6%
U.S. Growth 2.3% 11.1% 19.8%
U.S. Value (0.1%) 2.8% 17.3%
Int’l Developed 2.6% 10.2% 11.8%
Emerging Markets 2.2% 14.0% 19.6%

Fixed Income Total Return

U.S. Agg. Bond 0.8% 1.6% 0.8%
TIPS 0.6% 1.9% 1.7%
U.S. High Yield 1.1% 3.9% 13.7%
Int’l Developed 1.5% 3.8% (5.2%)
Emerging Markets 0.1% 4.3% 0.5%
Intermediate Munis 0.7% 2.4% 0.5%
Munis Broad Mkt 0.7% 2.1% 0.1%

Non-Traditional Assets Total Return

Commodities (1.5%) (3.8%) (1.3%)
REITs 0.4% 3.0% 7.7%
Hedge Funds
Absolute Return 0.3% 1.0% 1.8%
Overall HF Market 0.4% 2.1% 6.2%
Managed Futures (0.1%) (0.1%) (4.6%)

Economic Indicators

APR-17 OCT-16 APR-16
Equity Volatility 10.8 17.1 15.7
Implied Inflation 1.9% 1.7% 1.7%
Gold Spot $/OZ $1268 $1277 $1293
Oil ($/BBL) $52 $48 $48
U.S. Dollar Index 94.0 91.9 89.3

Our Take