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ECONOMIC FLASH – Foreign Stocks Build Momentum

June 2017

US Economy: Stronger growth expected.

As we anticipated, acceleration in monthly job growth for May (+253,000) and consumer spending (+0.4%) now point to stronger economic growth for Q2.

US Stocks: Markets ignore politics.

S&P 500 stocks finished the month up again, quickly rebounding from a 1.8% single day decline mid-May on the possibility of US presidential impeachment. Tech stocks (+4.5%) continued to drive performance.

Foreign Stocks: Europe shines.

Political scandal and weak energy prices held back Brazil and Russia, respectively, as emerging markets trailed. Europe continued to lead developed markets, with Europe ex-UK returning 4.9% on improving earnings and economic data.

Fixed Income: US rates hunker down.

The yield on 10-year US Treasuries fell 0.1% — to 2.2% — a low level we believe is unlikely to persist. Futures markets pricing indicates the Federal Reserve will almost certainly raise interest rates in June.

Non-Traditional: All that glistens is not bitcoin.

Bitcoin investing is not for the faint of heart. While bitcoin gains have made headlines, the currency has had four declines larger than 7% so far in 2017, two of which were greater than 24%.


Recent data affirm that the US economy is on stable footing. We expect that stronger Q2 economic growth and earnings, both domestically and abroad, will support equity markets in the second half of the year.

We continue to think US interest rates are headed higher. Adding to our conviction: The Federal Reserve is telegraphing it will start to sell off some of its vast Treasury bond holdings, bought as part of quantitative easing. A higher supply of US Treasuries and less demand from foreign investors (as foreign central banks start to increase interest rates), is likely to put upward pressure on US rates. Strategies not dependent on interest rates falling will add value to portfolios in this environment.

Glossary and Disclaimer for Economic Flash

Equities Total Return

U.S. Large Cap 1.4% 8.7% 17.5%
U.S. Small Cap (2.0%) 1.5% 20.3%
U.S. Growth 2.3% 13.7% 20.2%
U.S. Value (0.3%) 2.5% 15.1%
Int’l Developed 3.8% 14.4% 17.0%
Emerging Markets 3.0% 17.3% 27.9%

Fixed Income Total Return

U.S. Agg. Bond 0.8% 2.4% 1.6%
TIPS (0.0%) 1.8% 2.4%
U.S. High Yield 0.9% 4.8% 13.9%
Int’l Developed 1.9% 5.8% (1.3%)
Emerging Markets 1.1% 5.4% 4.4%
Intermediate Munis 1.0% 3.4% 1.7%
Munis Broad Mkt 1.5% 3.6% 1.3%

Non-Traditional Assets Total Return

Commodities (1.3%) (5.1%) (2.4%)
REITs (0.1%) 2.9% 5.1%
Hedge Funds
Absolute Return 0.3% 1.3% 1.8%
Overall HF Market 0.2% 2.3% 6.0%
Managed Futures (0.2%) (0.2%) (3.1%)

Economic Indicators

MAY-17 NOV-16 MAY-16
Equity Volatility 10.4 13.3 14.2
Implied Inflation 1.8% 2.0% 1.6%
Gold Spot $/OZ $1269 $1173 $1215
Oil ($/BBL) $50 $50 $50
U.S. Dollar Index 93.3 93.7 89.7

Our Take