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Down, Up, Flat

| February 06, 2017

Greetings from a snowy Seattle! Having seen his shadow last Thursday, Punxsutawney Phil seems to be correct this year – at least here in the Pacific NW where the white stuff is covering all parts of the region. While the weather has been exciting, the overall movement in the market last week was anything but. As the title of this post makes alludes to, down…up…but ultimately flat is what things amounted to in the week ending 2/3/17. 

Domestic equity markets ended the week where they began after a rally on Friday made up for negative action earlier on. Smaller companies outperformed their large-cap brethren, but all of the major benchmarks continue to trade below their recent high water marks. The primary catalyst for the rough start to the week appeared to be the partial immigration ban announced by the Trump administration over the weekend. The move provoked complaints from a number of companies, particularly technology firms that rely heavily on overseas talent.

Tuesday brought relief in the healthcare and biotech sectors, however. Pharmaceutical firms rallied after the president met with industry executives and promised them expedited drug approvals and lower taxes, while also appearing to back away from negotiating drug prices through Medicare. Wall Street’s focus on Washington D.C. averted attention from the ongoing flow of fourth-quarter earnings reports, which easily outpaced expectations but were unsuccessful in moving the underlying stocks. Apple’s earnings report on Wednesday was a significant exception, with shares in the tech heavyweight rallying over 6% on a positive earnings surprise.

Attention turned to the economic environment on Friday, with the release of the closely watched monthly payrolls report. The Labor Department announced that employers had added 227,000 jobs in January, handily outpacing consensus expectations. The gain brought to an end a three-month soft patch and kept the labor market on a solid path of improvement, although the pace of monthly gains will most likely moderate over the remainder of the year. The payrolls report also revealed that hourly wages had only risen by 0.1% in January, cheering markets concerned with the looming prospect of Fed tightening.

Shifting attention across the pond – a flurry of news occurred this week that, in essence, advances and clarifies the process that would ultimately clear the way for the UK to leave the European Union. Populist forces, which sparked the Brexit vote last year, could spread to other countries and disrupt markets as well as the established order in Europe. Whether that turns out to be bullish or bearish for equity markets remains to be seen, as the relatively positive market outcomes in the UK has defied pessimistic expectations thus far. All eyes will be on the September elections in Germany, and specifically on the political fate of Chancellor Angela Merkel.