For the third consecutive week, the U.S. posted impressive economic results. Manufacturing PMI, retail sales, producer price inflation and initial jobless claims all came in better than expected.
International economies followed suit for the week, with results in Europe and Japan beating expectations. While manufacturing PMI outperformed expectations in Europe, core machine orders and producer prices in Japan came in much better than anticipated.
In the U.S. equity market, healthcare—especially biotechnology—outperformed following several positive announcements including drug approvals, restructurings and stock buybacks. Financials—and banks, in particular–underperformed for the week as investors took profits following the sector’s recent outperformance.
Overseas, emerging markets outperformed. In particular, China posted better-than-expected trade numbers and loan data—easing fears the Chinese government was curtailing access to credit. Russia also posted better-than-expected trade data.
However, Europe underperformed for the week. European Central Bank President Mario Draghi disappointed markets with his statement that inflation will improve only slowly over the next three years
In fixed-income markets, long-duration corporate bonds outperformed as the yield curve flattened and credit improved. Preferred stocks underperformed, however, taking their cue from the underperforming financial services sector in the equity market.
U.S and foreign equity markets posted gains, as investors became increasingly optimistic that the tax bill in Congress would pass. We remain globally diversified, but have reallocated some of the portfolios’ exposure back to the domestic market recently. Meanwhile, market gains are still being driven primarily by large-cap stocks (despite the seasonal strength in small-caps that tends to occur each December).