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Market Commentary

July 2017 Market Commentary – Earnings Matter (Especially Now)

Data Source: Bloomberg

Highlights:

• July saw another month of ex-U.S. outperformance in both equities and fixed income largely led by U.S. dollar weakness (Dollar Spot DXY down 2.9% for the month and -9.35% YTD). 
• Commodities also benefited from the U.S. dollar weakness led by energy prices as oil continues to recover off its 2Q lows helped by a reduction in oil inventories, as well as, iron ore prices following Chines Premier Li Keqiang’s comments over shutting down lower quality production. 
• According to the 7/28/2017 Factset Earnings Insight report, with 57% of the companies in the S&P 500 having reported 2Q17 results, S&P earnings have grown 9.1% on a blended basis.  For all of 2017, S&P earnings are expected to grow 9.5% on top of revenue growth of 5.5%.
• The S&P 500 was narrowly led by strong performance from telecom and technology.  The rest of the market struggled to keep up with the broad market advance.
• After having spiked at quarter-end following hawkish central bank comments, long-term Treasury yields and inflation expectations have steadied as inflationary pressures remain subdued despite the Federal Reserve’s commitment to normalize monetary policy which could put upward pressure on longer-term rates.
• Based on a comparison of tax-equivalent municipal bond yields versus U.S. Treasuries, muni investors may be pricing in a version of tax policy that could be especially punitive to the mid-to-upper income segments. 

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