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Market Overview

Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 10/06/17. Rates and Economic Calendar Data from Bloomberg as of 10/09/17.

Happening Now                   

The fourth quarter got off to a strong start last week as U.S. equities rallied on the back of economic data and hope for tax reform. The S&P 500 and Russell 2000 Indexes each gained 1.3% while the Russell Midcap Index moved 1.2% higher. Internationally, developed markets experienced a second consecutive week of muted action, falling only 0.06% while emerging markets advanced 2.0%.

Economic data last week rolled in favorably continuing the trend set in motion during September that has led to higher equity prices and bond yields. The Institute for Supply Management’s monthly survey of business activity showed that both manufacturing (the largest sector of the U.S. economy) and the non-manufacturing sectors expanded to multi-year highs. In addition, Friday’s monthly employment report showed that the unemployment rate declined to 4.2% and wages grew at an annual pace of 2.9%. Given the broad strength exhibited by the U.S. economy, the probability for a third rate hike by the Federal Reserve this year has increased to over 80% (CME Group).

While the economy and stock market appear to be firing on all cylinders, we continue to stay attuned to potential catalysts for the next bear market. Despite our efforts, it appears that many of the typical conditions that precede a recession and/or bear market are simply not in place today or cannot be measured by traditional data sets. It is true that valuations are high across nearly all asset classes; however, low interest rates and the benign macro-economic environment at least partially justify prices at these levels. We are also encouraged to see that much of the growth exhibited in the stock market this year has come from fundamentals (ie. sales and earnings) and less from pure speculation (multiple expansion).

Certainly, we will see stock prices fall and a recession ensue at some point in the future. Investors need to be prepared for this to happen and know how their securities will perform to prevent them from making irrational decisions like unnecessarily selling stocks when prices are low. Part of our job as portfolio managers is to keep an open dialogue with clients to ensure they’ve set their expectations appropriately. We believe this will keep them in a position to capture the growth potential offered by the stock market and worry less about timing the market. If you would like to speak with one of our asset management professionals, or simply have your portfolio reviewed, please call your Hennion & Walsh Financial Advisor at (800) 836 – 8240.

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.

Definitions

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.