3/31/17 – Stocks Increase, Brexit Moves Forward, Retail Under Pressure

Stocks Finish 1st Quarter on Positive Note, Brexit Formally Initiated

  • Stocks rebound in the final week of March
  • UK formally initiates process to leave the EU
  • Retail bankruptcies pile up

Stocks finished the last week of March on a positive note. The Dow gained 0.3% while the S&P 500 added 0.8%. For the quarter the Dow and S&P 500 increased 4.6% and 5.5%, respectively. The first quarter was the sixth straight quarter where the indices increased.

Earlier this week, the UK officially started the process of leaving the European Union by invoking article 50 and formally filing its ‘intention to leave’ letter to the European Council. The two sides now have two years to negotiate the terms of the departure. The goal of the negotiation is to determine any departure tax the UK might have to pay as well as sign trade, work and travel agreements between the UK and the rest of the EU. Trade between the UK and the EU is important to both economies, so it seems to me the sides should be able to work out an agreement. Switzerland and Norway are notable examples of non-EU countries that have effectively negotiated trade and other deals with the EU. Those deals seems like a great starting point. While many EU officials are likely still upset about Brexit, economic self-interest should encourage a relatively seamless process. No one wins from an ugly process that hurts trade for everyone. Read More

The retail sector continues to struggle. As online shopping grows, regular brick & mortar businesses are closing stores and in some cases filing for bankruptcy. Macy’s, Sears and others have announced large numbers of store closings. Specialty retail stores like Gander Mountain, Wet Seal and BCBG have filed for bankruptcy protection this year. In the first quarter, nine retail companies filed for bankruptcy, equal to the total for all of 2016. What’s interesting to me about this is while many retailers are struggling, Amazon is actually looking to open more physical retail stores. I think this points to the fact that physical retail will always have a presence, especially in key locations that can be profitable. However, we are significantly over-retailed in this country. Amazon can start from a position of strength and add key locations and avoid less lucrative markets. It’s going to be a fascinating few years as the retail space equalizes with demand. It will also be interesting to watch what this means for commercial real estate. There are millions of square feet of retail space across the country that are simply not needed. Will other businesses step and use this space or will we be left with numerous empty stores? Read More

Oil increased 5.4% this week, closing at $50.73/barrel. This was the first weekly close above $50 in four weeks. The yield on the 10-yr Treasury decreased slightly, closing at 2.40%, from 2.41% a week ago. The average rate on a 30-yr mortgage declined again, moving to 4.14% from 4.23% last week.

Close Weekly YTD
Dow Jones 20,663.22 0.3% 4.6%
S&P 500 2,362.72 0.8% 5.5%
Oil 50.73 5.4% (5.9%)
10-yr Treasury (∆ in bps) 2.40 (2) (5)

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