Inflation Heats up and Stocks Gain

Market Overview


Sources: Equity Market and Fixed Income returns are from JP Morgan as of 2/17/17. REIT, Rates and Economic Calendar Data from Bloomberg as of 2/20/17.

Happening Now

Domestic stocks posted another week of gains while inflation data came in hotter than anticipated and Janet Yellen delivered her semi-annual testimony before congress. The S&P 500 Index gained 1.6% while the Russell Midcap and Russell 2000 each gained 0.8%. International stocks also posted positive results last week with developed markets, as measured by the MSCI EAFE index, up 0.9% and the MSCI Emerging Market index 1% higher. In terms of 2017 year-to-date performance, emerging markets continue to lead with an impressive 9% gain while the U.S.’s 5.3% gain has outpaced developed international markets which are up 4.4%.

A flurry of economic data was released last week but the Consumer Price Index (CPI), which is a measure of inflation, grabbed the most headlines. The CPI gained 0.6% in January, the highest monthly reading in nearly four years. The year-over-year gain for the CPI was 2.5% partly due to energy prices recovering from 2016 levels. Janet Yellen’s semi-annual testimony before congress took place last week. The Federal Reserve Chair took the opportunity to reiterate that additional interest rate hikes should be expected if inflation moves higher and the labor market remains tight. So far we are seeing this play out in the data and will continue to monitor further developments.

While market moving news has been abundant recently, markets have been incredibly calm. We believe that volatility is set to move higher and suggest that investors plan for a period of higher rates, more regular pull backs in the stock market and heighted political risks abroad. As a reminder, a number of impactful elections are set to take place in Europe that have the potential to reshape the European Union. Will populism trump globalism as it has in the U.K. and U.S.? Or will mainstream candidates win out and sweep away the many uncertainties that come along with more polarized political policies?

Important Information and Disclaimers

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Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

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Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

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MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

Investors cannot directly purchase any index.

LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITSs that primarily own and operate income-producing real estate.