March – 2017 Newsletter

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Index Month / Year to Date


Dow Jones -0.59% / +5.18%
S&P 500 +0.11% / +6.05%
NASDAQ +1.56% / +10.12%
10-Yr Treasury 2.39% end of February and 2.38% end of March

Source: Bloomberg.com

Markets:

Apart from technology, equities cooled off a bit in March as reality started to set in: the Trump administration may have a tough time getting their agenda approved within their own party—let alone when dealing with the Democrats. The week of March 27 started with all the markets down and the Dow Jones Industrial Average culminating its eighth straight day of losses—its longest losing streak since 2011.* The slide was primarily prompted by what happened on Capitol Hill the previous Friday when Trump’s team failed to push its Obamacare reform bill through Congress mainly due to opposition from Republicans. The debacle clearly dampened the optimistic mood that had reigned on Wall Street since Trump’s election.

Though the markets made a shaky recovery, their upward momentum has stalled, and the dramatic dip might be seen as a sign of even more drama to come. If big investors were so spooked by Trump’s healthcare bill flopping, how might they react if other bills also hit roadblocks—namely, his tax reform bill and others central to his economic plan? That question has increasing number of market forecasters concerned.

On the fixed-income side of the markets, interest rates seem to be holding at current levels even though the Federal Reserve continues to talk of increasing rates another half of a percent this year. That may be difficult with so many questions still to be answered about Trump’s actual ability to grow the economy and with long-term rates evidently stabilized again. The 10-Year Treasury has again fallen below 2.5 percent after a brief spike to just over that percentage in the middle of the month. This has been a consistent trend since the election.

Raising short-term rates while long-term rates remain low runs counter to economic growth because it flattens the yield curve, giving banks less incentive to lend. Whether rates start trending up again or low interest rates are our “new normal,” as they have been in Japan for 20 years, active management will remain a key resource for maximizing returns for fixed-income investors!

*Sara Sjolin & Victor Reklaitis, “These 5 charts show how Trump’s health-bill flop is hitting markets,” March 27, 2017, marketwatch.com


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