First Quarter 2017: Finally, Synchronized Global Economic Growth
Global markets rose in the first quarter, responding to improving economic news around the world. After eight years, it appears that global economies are finally rising synchronously, although in the US, the policy baton is being passed from the Federal Reserve to fiscal policymakers, while in Europe, monetary policy remains the driver of growth.
Aside from commodities and US small cap value stocks, world asset prices rose in the first quarter of 2017. International indices, led by emerging markets, were the best performing major asset class, with the MSCI ACWI ex US Index returning almost 8% for the quarter. These gains were aided by a slight depreciation in the US dollar. The US stock market rose approximately 6% in the quarter as the bull market that began in early 2009 continued into another year. The US stock market has now risen for eight consecutive years, one year less than the record 9 years during the 1990s expansion.
Domestically, US investors continued to bet on the Trump administration’s promise to roll back regulation and decrease taxes. After falling in the fourth quarter, healthcare stocks rebounded as the Republican-controlled House of Representatives couldn’t agree on a plan to repeal and replace the Affordable Care Act. Republican leaders have shifted focus towards a possible tax code overhaul. US employment continued to expand and the strong job market allowed the Federal Reserve to raise interest rates for the third time since the financial crisis. Even with the rate hike and the possibility of three more this year, long-dated Treasury yields were little changed over the quarter. Corporate spreads tightened as the Bloomberg Barclays Aggregate Bond Index finished up almost 1% for the first quarter.
Internationally, Latin American and Asian markets helped push international indices higher over the quarter. Interestingly, emerging market equities were up over 10% in the quarter despite a decline in commodity prices. European equity markets also performed well as the European Central Bank continued its stimulus efforts.