A Bumpy Start and Quiet End to the Summer of 2016
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 09/02/16. REIT, Rates and Economic Calendar Data from Bloomberg as of 09/02/16.
U.S. Stocks1 churned last week again trading minor daily gains with losses but ultimately finished the week higher by 0.6% following a weaker than expected Employment Report that prompted some to believe a September rate hike is now off the table. International stocks posted mixed results with the MSCI EAFE Index, which measures international developed markets, gaining 0.5% while the MSCI EM Index, which measures international emerging markets, fell 0.1%. The final 6 weeks of this summer will be remembered for the historically low volatility that accompanied quiet gains in both stocks1 and bonds22 but one should not forget how uncertain things appeared and how quickly markets moved earlier this summer during the days following the June 24 Brexit vote.
The Employment Report released Friday showed that 151,000 jobs were added during the month of August, down from the 275,000 jobs that were added during the month of July and short of estimates which anticipated a gain of 175,000 jobs. It is important to remember that despite missing estimates, the U.S. job market continues to improve, suggesting that wages could be set to rise – a condition many feel necessary to promote inflation and a higher Fed Funds target rate.
In other news last week, Real Estate Investment Trusts, or REITs for short, officially became their own sector on August 31. REITs were previously considered part of the financial sector and JP Morgan notes that they will now account for about 3% of the S&P 500’s market cap, approximately the same size as Materials, Telecom, and Utilities. In the current low interest rate environment, REITs, which must payout 90% of their income to shareholders, have been a favorite of investors craving yield and are up over 12% on a total return basis, year-to-date as of September 2, 2016, as measured by the SPDR Dow Jones REIT Exchange-traded Fund (Ticker: RWR).
Now that the summer is unofficially over, kids are heading back to school, and beach vacations are all but a memory, we expect trading volumes to pick-up and, perhaps, volatility to become a factor once again. We encourage all investors to clearly outline their investment goals, review the investment strategy they are currently using, and take the necessary steps to help ensure they are in sync. A possible first step in this process would be to speak to your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team about having a complimentary portfolio review completed today.
1As measured by the S&P 500 Index. 2As measured by the Barclays Aggregate Index.
Important Information and Disclaimers
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITSs that primarily own and operate income-producing real estate.