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The Market and the Economy

Indexes and Benchmarks

The following table reflects the performance of a selection of frequently used indices and benchmarks for the 2017 calendar year thus far:

Index %Gain/Loss 2017
S & P 500 8.3
Dow Jones Industrials 8.0
Nasdaq (high-tech stocks) 14.1
Russell 2000 (small cap stocks) 4.2
Russell 3000 (broad market) 7.8
Dow Jones Global Stock Index 10.3
Dow Jones Global Stock Market (Ex-US) 12.6
Dow Jones Islamic Market Index 12.5
MSCI Emerging Market Equities 17.2
Barclay's US Aggregate Bond Index
Barclay's Global Aggregate Bond Index 4.5
US Treasury Inflation Protected Securities .8
WCII World Balanced Investments Index* 8.0
Bloomberg Commodity Index (5.5)
DJ US Select REIT (Real Estate) 3.1
Alerian MLP Index # 7.2
Eurekahedge Hedge (Fund of Funds) Index 3.2
US Money Market Funds (taxable) 0.1
* Portfolio benchmark reflecting a 60% holding of the Dow Jones Global Stock Index and a 40% position in the Barclay World Aggregate Bond Index. # Master Limited Partnerships (oil/gas pipeline firms).

Equity markets surged in the first half of 2017 with large cap and high-tech issues leading the way. Emerging market equities also soared as institutional bargain hunters sought opportunities to broaden diversification and improve risk-adjusted returns.

A wide disparity of performance was observed in US sector returns with the Technology (+21%) and Health Care (+16%) sectors excelling and the Telecommunications (-15 %) and Energy (-13%) sectors registering very lackluster returns.

The Markets and the Economy

The US economy is growing at a steady, if moderate, pace and the world economy is following suit. US corporate profit growth has been encouraging and the ratio of listed companies that are raising dividends dwarfs those that are reducing them. Moreover, factory orders are up from last year, unemployment is at a nine-year low and consumer confidence is high. Although US equities are priced at the high end of their historic range, there a few indications of an imminent equity market downturn.

The same is not the case for bonds. As the Fed continues to signal rising rates, the exodus from bond holdings is providing additional capital for real estate and foreign equity investments, in particular.

A consensus of highly regarded economic forecasters indicates that there is a probability of approximately one in four of a recession and an equity market downturn in 2018. However, the US Treasuries yield curve has been the best predictor of downturns in modern history. An inverse yield curve occurs when the yield on a three-month treasury bill is as much as or more than that of the ten-year treasury note and is highly predictive of both a recession and a market capitulation.

The reason for this is that, when sort-term interest rates equal or exceed long-term rates, lending by large institutions diminishes significantly, because institutions find it more difficult to make profitable loans. Commercial activity is nurtured by borrowing and a lack of liquidity is death to the business cycle.

Currently, the treasury yield curve is positive. However, given that equity markets are fully valued, Wealth Conservancy will continue to monitor this important economic indicator closely and will take appropriate measures to reduce client portfolio risk if warranted.

Updated on July 27, 2017.

Wealth Conservancy International, Inc., 7411 River Road, Fredericksburg, VA 22407
Tel: 540-548-3009 | Toll-free 1-800-515-1588
E-mail: wciicpb@comcast.net