A review of the first four months of 2017 shows that foreign markets outperformed those in the United States, with emerging markets beating them all.
The big story, in my view, was the weakening U.S. dollar.
After the Nov. 8 U.S. presidential election, the dollar rose sharply as if investors were conveying that they strongly favored U.S. markets, but that sentiment seems to have changed so far this year.
Shortly after the presidential election, investors showed they were comfortable buying U.S. equities amid rising optimism about economic growth, which boosted the dollar’s value late last year.
However, that trend reversed around the start of 2017 and the following numbers indicate that the U.S. dollar is down sharply for the first four months of the year.
I doubt the change in sentiment of investors stems from concerns about the U.S. economy. I think it partly is due to investors overreacting in the days and weeks after the Nov. 8 election, as they assumed that certain policy proposals would become law quickly and influence the economy.
Once it became clear the legislative process would take longer than expected and include some extended negotiations, some investors scaled back their equity positions. Others took profits to cash in on the sharp post-election rally.
More importantly, however, I think investors started to notice improving market opportunities outside of the United States. Many investors reallocated some money to overseas markets.
In fact, that trend not only hurt the dollar’s valuation, but also lifted gains in overseas stock markets. The following data illuminate the situation further.
In sum, the U.S. markets performed in line with overseas markets in April, but the non-U.S. markets still are ahead for 2017. The performance numbers below help to tell the story.
The S&P 500 rose 1.22% in April and gained 7.12% for the year so far. The Dow Jones Industrial Average returned 1.25% in April and 6.65% for the year’s first four months. The Russell 2000 rose 2.54% for the month but only 3.61% for the year through the end of April.
The All-Country World Index rose 1.29% in April and 8.51% for the first four months of the year. Emerging market stocks only returned 0.93% for April but still are the standout performer for the first third of the year with a gain of 13.70%.
For fixed-income investors, long-term treasury bonds showed a recovery in April. The long-term treasury bonds notched a 1.49% return in April and are up 2.99% for 2017. Investment-grade bonds rose 1.33% for the month and 2.41% through the first four months of the year.
Treasury Inflation-Protected Securities (TIPS) gained 0.78% for April and 1.80% for the first third of 2017. High-yield bonds earned 1.84% for April and 3.25% for the year’s first four months.
The U.S. dollar dipped 0.65% during April and has fallen 3.25% for the first third of the year.
Other than gold, commodities generally had a tough month during April. Energy-based commodities lost 0.28% during that month and 7.43% through the year’s first four months. Broader-based commodities lost 1.19% in April and 4.58% for the first third of 2017. The good news came from gold, which rose 0.66% for April and is up 9.14% for the first third of the year.
Another sign of weakness is that the recovery in home prices has been very uneven across the United States. For details, check out this report by clicking here.
Investors are told to diversify but such advice resonates at times such as this one when foreign markets and, in particular, emerging markets show the mettle of such risk-averse thinking. You are invited to keep up with my latest views by reading my public blog.
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Until next time,
Robert Carlson is editor of the monthly newsletter, Retirement Watch. In it, he provides independent, objective research covering all the financial issues of retirement and retirement planning. Carlson also is Chairman of the Board of Trustees of the Fairfax County Employees’ Retirement System and the founder of Carlson Wealth Advisors, L.L.C.