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Market Commentary

1Q2017 Market Commentary – Hopes for a Cyclical Recovery Deflate

Data Source: Bloomberg

Highlights:

• Global equities posted a strong quarterly return led by ex-U.S. markets as investors become increasingly comfortable with the global growth environment. 
• However, U.S. equities were flat in March as investors’ high expectations for fiscal stimulus and regulatory relief hit the hard reality of the D.C. political establishment.
• Fixed income had a flat March but slightly positive quarter overall.  The 10-Year U.S. Treasury Yield rose up to 2.6% at one point before dropping to 2.35-2.40% over concerns that the U.S. economy is losing momentum. 
• The drop in oil prices to below $50/barrel before settling just above $50 at quarter-end also weighed on commodity indices and, tangentially, the U.S. credit markets. Rising North American energy stockpiles helped drive prices lower as did perceptions of OPEC’s commitment to curtail production.  
• With respect to ‘soft’ economic data, fixed income credit markets, such as high yield, would likely sniff out meaningful economic weakness; such weakness has not manifested itself in credit spreads so far.
• Inflation expectations remain elevated at around 2%; hence, even with reservations over the direction of this administration and commodity price weakness, the cyclical reflationary wave remains intact for now.

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