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Post Oak's July Economic and Market Update - click to read


Post Oak Private Wealth Advisors


Monthly Economic Update | July 2017

Summary:   The second half of 2017 began with more of the same for the U.S. markets and economy—stocks still hovered at record levels, economic growth remained modest, and the Fed re-affirmed their commitment to moving away from easy money.

The Economy:   The U.S. economic expansion entered its 9th year, but the slow pace of growth over this time has not given U.S. investors much to cheer about. The 2.1% annualized GDP growth rate since 2009 represents the most modest economic expansion since WWII. (See chart below.) The first estimate of Q2 GDP growth was a little more promising, coming in at an annual rate of 2.6% for the quarter. That was a good improvement over the 1.2% annual rate of GDP growth for Q1. The employment markets remain a bright spot for the U.S. economy, with the Labor Department reporting the addition of 222,000 jobs in June. With this report, average monthly job growth for the first half of 2017 was just under 180,000. The lack of inflation seems to be growing concern for investors—the annual rate of inflation hit an 8-month low in June of 1.6%, despite a jump in energy prices.

Equities:  U.S. stocks gained just over 2% in July as measured by the large-cap benchmark S&P 500 Index. Monthly performance was even better for the Nasdaq Composite Index, which rose over 4% in July. Equity investors continued to push the major indexes to new highs, encouraged by good news on Q2 earnings for many large U.S. corporations. According to FactSet, over 70% of companies that have reported Q2 earnings so far have beat analyst expectations. But positive earnings didn’t shield all firms from outside risks—in particular tobacco-giant Altria Group (MO), which saw its stock price fall over 10% on July 28 after the FDA proposed reducing nicotine levels in cigarettes to make them less addicting. The drop in tobacco stocks pinched performance for the consumer staples sectors for the month. The technology sector continued to shine, contributing nearly half of the S&P 500 performance in July.

Sector Performance:

Telecom

6.4%

Verizon shares up nearly 9% for the month; AT&T climbed over 3.6%
Technology

4.3%

Software, services and chip makers reported double-digit earnings growth for Q2
Energy

2.5%

Oil prices rebounded to $50/barrel along with revenue and earnings growth
Utilities

2.4%

High-yield electrics remained in favor as interest rates declined for the month
Consumer Discretionary

1.9%

Another stellar month for e-commerce and cable operators
Financials

1.7%

Strong earnings from insurers outweighed weakness at the big banks
Materials

1.5%

Gold and copper producers shined but chemical firms fizzled
Real Estate

1.2%

Health care REITs weighed on performance, even as retail REITs rose for the month
Health Care

0.8%

Despite positive returns for biotech, hospitals and equipment makers declined
Consumer Staples

0.6%

Tobacco stocks dragged on performance; large grocers and distributors led the sector
Industrials

0.1%

Building products and airlines were weak, but defense stocks bolstered sector returns.
Source for equity sector total return data: S&P Dow Jones Indices, Index Dashboard: U.S., July 31, 2017


Bonds: More of the same ruled the day in fixed income markets during the month. The Federal Reserve took no action at its July meeting, as many Fed watchers had expected, while indicating it remains on track for one more rate hike to come in 2017. Recent weak readings of inflation have caught the Fed’s attention, and it noted in its statement after the July meeting that the central bank would be “monitoring inflation developments closely.” The Fed also committed to begin reducing its balance sheet relatively soon, as long as economic conditions pose no surprises. Rates on 10-year U.S. Treasury notes finished lower at month-end but yields for shorter maturities held mostly steady, reflecting some concern among investors about upcoming negotiations for the federal government’s debt ceiling. Continued strong demand for corporate bonds from yield-hungry income investors led to declines in yields for both investment grade and high yield credit securities during the month.

The Month Ahead:     Investors seem unfazed by the D.C. drama, so a focus on the fundamentals of investment performance—economic growth and corporate earnings, primarily—should help the market avoid any politically-driven emotional reactions. Federal Reserve policymakers don’t meet again until September, and it’s unlikely there will be any further announcements regarding balance sheet reductions before then. August is typically a quiet month for the markets, but with volatility already touching low levels it’s hard to imagine how much quieter the market could get in the next few weeks.


Past performance does not guarantee future results. There is no guarantee that any investment strategy or account will be profitable or will not incur loss. Investors should consider the investment objectives, risks, charges and expenses that make up this investment strategy carefully before investing. Investing involves risk, including the possible loss of principal. Share price, principal value, and return on investments will vary, and you may have a gain or a loss when you sell your investment.

Post Oak Private Wealth Advisors may have an interest in securities or sectors highlighted in this report. This presentation and the data herein is neither an offer to sell nor a solicitation of any offer to buy any securities, investment product or investment advisory services offered by Post Oak Private Wealth Advisors. (“Post Oak”) This presentation is subject to a more complete description and does not contain all of the information necessary to make an investment decision, including, but not limited to, the risks, fees and investment strategies of any Post Oak products or services. Any offering is made only pursuant to the relevant information memorandum and accompanying, subscription materials, including Post Oak’s Form ADV Part 2, all of which must be read in their entirety. This information is not an advertisement and is not intended for public use or distribution and is intended exclusively for the use of the person to whom it has been delivered. The contents of this report have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness.  Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Market index performance is provided by a third-party source deemed to be reliable. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses have been reflected. Individuals cannot invest directly in an index.