Real Estate, as measured by the FTSE NAREIR All REIT Index, was the top performer, up +4.0% on the month, likely benefitting from a pull back in Treasury yields.
Gold was the next best performer, up +3.1% during the period to close at $1,248/ounce. The metal has seen a bid so far in 2017, up nearly $100/ounce, or +8.3%.
Flows into Gold are likely being driven by the high level of complacency that is visible in the market and as a hedge to above average equity valuations.
Equity market volatility remains near historic lows, while most of the S&P 500’s gains in 2016 were again due to multiple expansion, as opposed to earnings growth.
The Dollar, as measured by the DXY Index, rose +1.6% on the month, recovering some of January’s -2.6% decline. The Dollar is below its year end 2016 level of 102.21, but is still up +3.33% since the November election.
Prospects for rising interest rates, which may come as early as the March 14-15 FOMC meeting, continue to give the Dollar a bid. Politics will likely continue to impact the Dollar in 2017, either from better economic conditions in the U.S. (hopefully!) or changes to tax policy (i.e. Border Adjustment Tax), which is hard to handicap at this juncture.
Despite the Dollar’s strength in February, broad commodities, as measured by the Bloomberg Commodities Index, rose +0.2%, bolstered by strength in West Texas Intermediate (WTI) crude oil, which rallied +2.3% on the month to close at $54/barrel on the NYMEX.
From a currency standpoint, the Euro was -1.9% weaker against the Dollar in February, closing at 1.06 USD/EUR, but virtually unchanged since three months ago.
Looking ahead, economic data and inflation in the Eurozone likely support a stronger Euro in “normal” times; however, political risks with upcoming French elections, and diverging monetary policies between the European Central Bank and the Federal Reserve are likely to keep the Euro depressed versus the Dollar in the short run. Additionally, the Yen was virtually unchanged versus the Dollar during the month, but +1.5% stronger against the Dollar over the past three months.