Week in Review: US Growth Sputters

For the week ending 28 April 2017

  • US Q1 economic growth rate slumps to 0.7%
  • ECB maintains dovish stance
  • Trump outlines tax reform proposal
  • US slaps tariffs on Canadian lumber
  • Merkel takes hard line on Brexit

Global equities staged a relief rally after centrist Emmanuel Macron advanced to final round of the French presidential elections, edging out populist Marine Le Pen for the top spot. Macron holds a 20-point lead in the polls ahead of 7 May’s vote. The rally lifted the MSCI World Index to an all-time high on Wednesday. US Treasury yields backed up to 2.31% from 2.22% a week ago as risk aversion ebbed. Oil prices fell to $49.00 from near $50 a barrel last week as fresh Libyan crude supplies hit the market. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), shed recent gains, sliding to 10.6 from 14.7 a week ago.


US growth slows
Restrained by weak consumer demand, 2017 got off to a sluggish economic start in the United States, with the economy growing just 0.7%, the weakest quarter of growth in three years. Harsh winter weather has often been blamed for weak growth in the first quarter, but this winter was fairly tranquil. The consistent Q1 growth shortfall has some economists questioning if there are flaws in the government’s seasonal adjustment methodology. Looking ahead, forecasts for Q2 growth are running in the 3% to 4% range.

Draghi cools taper fears
The European Central Bank surprised markets by maintaining a more dovish tone than many had expected. Bank president Mario Draghi allowed that downside economic risks had diminished, but he offered no hints as to whether or when the ECB will begin to dial back its asset purchases. Draghi said the recent inflation uptick was probably temporary and that underlying pressures are likely to remain subdued. Meanwhile, the Bank of Japan indicated it would maintain its present ultra-loose monetary policy amid signs of slightly stronger domestic growth but still-very-low inflation.

Trump turns to taxes
The Trump administration turned its attention to tax reform this week, releasing an outline of a proposal it will send to Congress. Under the plan, seven tax brackets would be reduced to three, the corporate tax would be slashed to 15% from 35% and the deductibility of state and local taxes would be ended. Notably, the proposal does not include a border adjustment tax, a centerpiece of the House GOP tax plan.

US tariffs imposed on Canadian lumber
Mexico has long been thought to be the focus of President Donald Trump’s ire on trade matters, but he surprised the markets this week by slapping levies of up to 24% on softwood lumber imports from Canada. For the past 35 years, there has been a trade dispute between the US and Canada on the commodity, which is mostly used in home building. Analysts see the imposition of tariffs as setting the tone ahead of talks on reforming the North American Free Trade Agreement. Trump said this week that he will not withdraw from NAFTA “at this time” after media outlets reported that his administration had drafted a preliminary executive order pulling the US out of the agreement.

Merkel toughens tone on Brexit
With 27 EU leaders gathering on Saturday, 29 April for a summit on Brexit, German chancellor Angela Merkel took a particularly hard line on the matter in a speech before the Bundestag. Merkel said that officials in London are harboring "illusions" if they expect preferential treatment during the break-up negotiations.


According to Lipper, as of 26 April, with 242 of the S&P 500 companies reporting, aggregate earnings for Q1 2017 are expected to rise 12.4% from Q1 2016. Excluding the energy sector, earnings are expected to grow 8.7%. Revenues are expected to grow 7.2% versus a year ago, 5.2% when excluding the energy sector.


  • Markets in China, much of the eurozone and the UK are closed for Labor Day on Monday, 1 May
  • Purchasing managers’ indices are reported for China, Japan and the US on Monday, 1 May
  • The UK and eurozone countries report PMIs on Tuesday, 2 May
  • Eurozone unemployment is reported on Tuesday, 2 May
  • Eurozone GDP is released on Wednesday, 3 May
  • The non-manufacturing PMI for the US is reported on Wednesday, 3 May
  • Ex US service-sector PMIs are reported on Thursday, 4 May
  • Eurozone March retail sales data are released on Thursday, 4 May
  • The US employment report is due on Friday, 5 May

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual or quarterly report. Full holdings are also available on the individual Fund Summary tab in the Products section of mfs.com.

Past performance is no guarantee of future results.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com.

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