Equities staged a late day rally during Friday’s final 30 minutes of trade, more than fully erasing earlier losses in the session. Investors remain hopeful that President Trump’s first address before a joint session of Congress will provide details surrounding his tax and healthcare reform plans. Friday’s reversal preserved the ongoing series of daily gains on the Dow Jones Industrial Average, closing at fresh all-time highs for the past 11 sessions, its longest streak of records since 1987. The so-called ‘Trump reflation trade rally’ has lost some momentum recently as Wall Street wrestles with political uncertainty in the U.S. and France. The potential for a quickened pace of interest rate tightening has also challenged investor sentiment.
For the holiday-shortened four-day week, the S&P 500 climbed by +0.73%, the Dow Industrials advanced +0.96%, and the MSCI EAFE (developed international) fell -0.14%.
What We’re Reading
High Stakes Congressional Speech -- Bloomberg
Rising US Production Clouds Oil Outlook -- Marketwatch
Key Global Data Last Week -- Market Realist
Chart of the Week: Prospects Brighten for EU Growth
As shown in Chart 1 above, the Eurozone’s preliminary February all-industry composite activity Purchasing Managers Index (PMI) jumped to a near six-year (70 month) high of 56.0, suggesting the pace of the growth across the European Union improved markedly. Indeed, the increase was broad-based across countries and components. According to J.P. Morgan, the PMI reading would be consistent with about 2.5% annualized GDP growth. The firm is cautious about placing significant weight on one month’s reading, but the increase was large enough (and supported by national surveys) to prompt an upward revision to their first-half 2017 growth outlook. Their revised forecast has growth at 2.25% in the first quarter and 2% expected for the second quarter.
Furthermore, average GDP growth in the euro-region of 1.8% has delivered a 0.8% average annual decline in the unemployment rate in recent years. Absent a revival of productivity growth, the unemployment rate could fall even faster in 2017. This would pressure the European Central Bank (ECB), given that the unemployment rate of 9.6% is not far from the ECB’s 8.5% full employment target estimate. These macro considerations have driven J.P. Morgan to forecast an ECB tapering in their bond-buying program at the start of next year (2018) and a rate hike in second-half of 2018.
Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.