Global Stock Market Viewpoints: First Quarter 2017
International markets had an impressive start to the year. All major developed markets were positive for the first quarter and global indexes outperformed the US markets. The US Dollar weakened in the quarter which helped lift over all returns. The top performing sectors were technology, consumer staples and consumer discretionary. The energy sector sold off in the quarter.
The clouds of BREXIT and elections overshadowed what is an improving situation in Europe. The UK has official begun the process of leaving the European Union. They triggered Article 50 and they now have two years to negotiate their exit. Consumers and many businesses are naturally cautious given the high degree of uncertainty with BREXIT. Consumer and business confidence has drifted lower since the referendum. The areas of the economy which are doing well are tied to tourism and export oriented businesses. The weaker pound has helped these segments of the economy.
Elections are the dominate topic on the continent. The Netherlands had an election in March where the establishment parties did better than expected. The consensus opinion was right leaning populist parties were going to have strong showing. Stocks rallied after the Dutch results because it is expected that it will bring more stability. Elections in France in April and Germany in September will have investors attention. Besides the elections, the earnings and economic back drop is improving. The industrial and employment data across the EU is looking much better than last year. A modest level of inflation has returned taking the risk of deflation off the table. Corporate earnings grew 11% in the last quarter and is expected to continue at a similar pace this year. Valuations are a little above average but still more reasonable than the US.
Stocks in Japan rallied in US Dollars although it was a pretty quiet quarter. Corporate earnings have been improving as last year’s decline in the Yen helped exporters win more business. Earning expectations have also been helped by improved outlook by the US and Chinese economies. Inflation has slowly started to return and improvements in the labor market are helping the economic growth.
Canada, Australia & Asia
Stocks in Canada were the weakest in the developed markets. They were constrained by weakness in energy prices. In general, the economy is improving with strong retail sales and broad based industrial growth. Home prices continue to surge which is something we continue to monitor closely. Australia is seeing its own housing boom. The Reserve Bank of Australia, their central bank, is keeping rates at 1.5% because of concerns about inflating a housing bubble. Economic growth is improving after flirting with a recession last year. The Australian economy grew better than 1% in the fourth quarter. Asian markets did extremely well in the quarter. The outlook for the Chinese growth has been upgraded which helped their markets.
The currency markets provided a nice tail wind for US investors in the quarter. The US Dollar weakened against all major currencies. The reason for the sell-off was two-fold. The expectations that the Trump administration’s economic proposal will boost the US economy have softened and the economic growth expectations outside the US have perked up. This could be a temporary pause in what has been a strong rally for the US Dollar. The European currencies gained between 1% to 2%, the Aussie Dollar added 5% and the Japanese Yen rallied 4% in the quarter.
You can read our 2016 Fourth Quarter Global Market Viewpoints here.
Andrew Comstock, CFA
Please contact me at 913-660-0708 or by email to discuss your financial planning and investment management needs. You can sign up for our monthly newsletter here. Follow me on Twitter @CastlebarAM.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.