Market Commentaries

  • China, Oil and U.S. Data Lead to Risk-Off Sentiment


    Market Overview


    Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 01/15/16. Rates and Economic Calendar Data from Bloomberg as of 01/19/16.

    Happening Now                   

    U.S. Stocks (as measured by the S&P 500 Index), while posting gains on three of the five trading days last week, still experienced significant intra- and inter-day volatility that ultimately lead to a weekly loss of 2.2%. Heading into Friday, stocks were flat for the week but weaker than expected Inflation, Retail Sales and Industrial Production numbers, caused bearish sentiment to take over and the S&P 500 Index fell over 2%. This was the third daily loss of over 2% this year and the second consecutive week of losses for the benchmark index which is now almost 8% lower than its 2015 closing level of 2044.

    Concern over China’s slowing economic growth and a stronger correlation of the stock market to the price of oil are primarily to blame, in our view, for the broad-based selloff seen globally in what can be referred to as a “risk-off” trading environment. The terms “risk-off” and “risk-on” have been made popular by the tightening relationship of global markets that has developed since 2009. On a “risk-off” day, one could expect to see risk-based assets, such as stocks, fall and safe haven assets, such as investment grade bonds, rise. The reverse scenario would be expected to play out during a “risk-on” day.

    It is our belief that the U.S. and Global economies will continue to improve in 2016, however, given the length of this bull market cycle and the number of global economic and central bank uncertainties that persist, volatility will likely be high at various stages of the year. Investors should not only take this opportunity to reevaluate their own risk tolerance to ensure they are able to stomach wider price swings, but should also carefully look at their asset class and security selection. While prices have trended in the same direction, the degree of their movements has been different. Consider that the worst two sectors of the market so far in 2016 have been Financials and Materials, which are each down over 10%. On the other hand, the best two performing sectors Utilities and Telecom are up 0.3% and down 1.9% respectively. This is only one example of the types of divergences that exist, thus making the proper balancing of your portfolio strategy essential. If you would like to have your portfolio reviewed, please do not hesitate to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.

    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.

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