Financial Industry Insights from Advisors Asset Management

Content Type

Macro Insights Commentary

Optimism reigned in the first quarter of 2017 with survey “soft” data moving significantly higher since the November 2016 surprise election of President Trump, while activity “hard” data has trailed (Figure 1). Markets have focused on the stimulative aspects of the U.S. fiscal policy agenda, which covered healthcare, taxes, regulation, and infrastructure initiatives. Potential controversial international trade policies have been relatively minimal during the quarter, but with the scheduled meeting between Chinese President Xi Jinping and President Trump, the situation could become more fluid.

Figure 1: Market Optimism

Source: Market Optimism Data, Bloomberg, March 31, 2017

Large global risks like a Chinese slowdown were largely absent this quarter as global stimulus efforts helped support growth. The spotlight shifted to Europe with the rising prospects of a Euro-sceptic candidate in the French elections. The filing of Article 50 in the wake of the Brexit vote also kicked off the formal breakup process that has been largely smooth so far, but the uncertainty around the United Kingdom leaving the EU (European Union) has kept central banks accommodative, such as the Bank of England and the European Central Bank (ECB); these developments have largely been well received by risk assets.

As the quarter came to a close, it began to look as if enacting policy was harder than expected for the new administration. Failure of the Republican-led repeal and replace healthcare plan during the quarter increased uncertainty on the tax-policy agenda. Our base outlook continues to see some tax policy passed by year end, but the failure of the healthcare bill lowers our confidence.

Overall returns were strong with all major asset classes posting a positive total return in the first quarter of 2017. U.S. equities started the quarter strong with expectations of the fiscal acceleration, but eased up in March with rising policy disappointment. Developed equity outside of the United States and emerging markets posted strong results largely based on a policy-stimulated rebounding global growth. The below table is the calendar first quarter of 2017 (1Q17) performance by major asset class:


Asset Class





S&P 500





Russell 2000










MSCI Emerging Markets (EM)





Bloomberg Barclays Aggregate





Bloomberg Barclays High Yield





Bloomberg Barclays EM USD Sovereign





10-Year Treasury Yield






Source: Equity Indices, Bloomberg Tickers “SPXT, RTY, MXEA, MXEF, LBUSTRUU, LF98TRUU, BESQTRUU” March 31, 2017 | Past performance is not indicative of future results.

As we enter the second-quarter of 2017, the economy has shown signs of choppiness. We think investment has rebounded this year, in part, due to additional capital expenditures by oil and gas firms. However, household spending so far in 2017 has been weaker than expected, which is consistent with first quarters over the past several years. In addition, the unseasonably warm winter reduced the need for spending on utilities. The Federal Reserve (Fed) has continued to normalize policy rates, but conditions remain largely supportive. To us, the labor market remains strong and household balance sheets look pretty good, so we see recent softness as an aberration rather than the new trend.

All things considered, we believe that some stimulative elements of the tax program will get implemented. We have likely extended this economic cycle marginally, as a result. Given the recent policy setbacks and the potential delay in policy, we believe the Fed will likely err on the more cautious side this year. We believe these factors should remain supportive of risk assets, but could face headwinds once the stimulative effect fades.


CRN: 2017-0411-5905R

HIMCO is not affiliated with Advisors Asset Management, Inc. (AAM). AAM was not involved in the preparation of this article, and the opinions expressed herein do not necessarily reflect those of AAM.

The forecasts, opinions and estimates expressed in this report constitute the HIMCO’s judgment as of March 31, 2017 and are subject to change without notice based on market, economic and other conditions. The assumptions underlying these forecasts concern future events over which we have no control. The assumptions may turn out to be materially different from actual experience. There is no guarantee that any forecasts made will come to pass. Sectors referenced should not be construed as a solicitation or recommendation or be used as the sole basis for any investment decision. All data contained in this material is from sources deemed to be reliable, but cannot be guaranteed as to accuracy or completeness. All investments are subject to risk, including possible loss of principal. Fixed income investments are subject to credit and interest rate risk. Investments in high yield and foreign securities involve risks beyond those inherent in higher-rated and solely domestic investments. These risks are magnified in emerging markets. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

Hartford Investment Management Company (HIMCO) is an SEC registered investment adviser subsidiary of The Hartford Financial Services Group, Inc. (SEC registration does not imply a certain level of skill or training; nor does it imply that the SEC has sponsored, recommended, or otherwise approved of HIMCO).

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit



Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.