A Familiar Story – Stocks Gain while Volatility Stays Low
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 9/22/17. Rates and Economic Calendar Data from Bloomberg as of 9/25/17. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology. S&P 500 earnings data from FactSet as of 9/22/17.
U.S. Large cap stocks seesawed last week but finished up 0.1%. The gain in blue chips was overshadowed by their Mid and Small Cap counterparts which advanced 0.3% and 1.3% respectively. Internationally, developed markets rose 0.7% while emerging markets finished the week flat. Sector performance diverged widely last week with telecommunications stocks gaining 3.8%, beating the worst performing sectors or the week; Real Estate, which lost 2.8%, by 6.6%.
As was widely expected and discussed in our note last week, the Federal Reserve (Fed) announced last Wednesday plans to start their balance sheet normalization process in October. Citing strength in the labor market and moderate economic growth, the Fed will begin reducing the size of their balance by $10 billion a month. In addition, they left interest rates unchanged but signaled one more hike could take place before year end, likely at the end of their December meeting. Initial market reaction was muted with yields on U.S. Treasuries moving up only marginally during the week.
With the U.N. meeting in New York last week, geopolitics grabbed headlines as aggressive rhetoric was exchanged between the U.S. and North Korea. Markets proved resilient yet again, however, and shrugged off comments which may normally be expected to spur risk-off sentiment.
Investors have enjoyed markets with strong positive returns and very little volatility over the past twelve months. This is despite dramatic changes in the U.S. political landscape, natural disasters, and heightened geopolitical tensions. Those who have enjoyed the returns of their stock portfolios over the past five years should consider the unusual strength of the U.S. equity markets relative to long run historical averages and not set their forward -looking expectations too high. If you would like for us to review your strategy to help you better understand how changes in the markets and economy may impact your investments, please do not hesitate to speak with your Hennion & Walsh Financial Advisor.
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.