The following is Sit Investment Associates' quarterly global outlook and strategy summary. This summary contains the collective opinions of our analysts and portfolio managers and is provided for informational purposes only. At the end of each calendar quarter, the full publication is available. While the information is accurate at the time of writing, such information is subject to change at any time without notice, and therefore, so may the investment decisions of Sit Investment Associates.

Global Outlook and Strategy

May 8, 2017

Buoyed by better-than-expected calendar first quarter 2017 corporate earnings, the U.S. stock market advanced further in April following essentially flat performance in March. As has been the case since December 2016, the performance of growth stocks continued to outpace that of value stocks in April. 

The Bureau of Economic Analysis recently reported that U.S. real GDP expanded at a meager pace of +0.7 percent on a quarter-over-quarter annualized basis in 1Q17. Economic growth, which was bolstered by strong gains in private fixed investment, was offset by weaker-than-expected consumer spending, a large inventory drag, and a decline in government spending.  We continue to believe the current fundamentals support +2.0 percent to +2.5 percent real GDP growth in the U.S. over the next couple of years, with potential upside based on the timing and scope of policy changes by the Trump administration.

Despite the weak headline first quarter GDP report, the Federal Reserve is likely on pace to raise interest rates at its next Federal Open Market Committee (FOMC) meeting given underlying resiliency in the U.S. economy, tight labor markets, and modest inflationary pressures.  We anticipate that the Federal Reserve will continue to maintain a prudent stance and increase rates only at a very measured pace.

We believe U.S. equities will remain subject to volatility in response to progress on President Trump's initiatives, the pace of interest rate hikes, and global macroeconomic/political conditions. We maintain that a diversified, "barbell" investment strategy will provide favorable risk/reward potential for portfolios, and we are overweighting a combination of holdings that are either pro-cyclical/policy beneficiaries or defensive/domestically-focused. Pessimism over the lack of visible progress in Washington has provided investment opportunities and, as a result, we continue to add opportunistically to positions in policy beneficiaries within several industry groups, including finance, transports, defense, capital goods, and health services. 

For more details, including a longer discussion on whether or not the positive reaction of the markets to the 2016 presidential election is over or will continue, please see Sit Investment Associates' April 2017 Global Investment Outlook and Strategy paper. Click here: Global Outlook and Strategy (Adobe Acrobat) or e-mail us at: siainfo@sitinvest.com.

 

May 28, 2017




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