Market Commentaries

  • Drama Ahead of OPEC Meeting while the Fed Waits around the Corner


    Market Overview


    Sources: Equity Market and Fixed Income returns are from JP Morgan as of 11/25/16. REIT, Rates and Economic Calendar Data from Bloomberg as of 11/28/16.

    Happening Now                   

    Stock markets in the U.S. and around the world gained value during a shortened week of trading for U.S. investors. The S&P 500 Index increased 1.5%, while international developed1 and emerging2 markets each gained 1.3%. Telecommunications3 companies were the best performing sector in the U.S. gaining 4.7% while Healthcare4 stocks were the worst of the eleven sectors losing 0.3%. Yields on short and intermediate term U.S. government bonds continued to move higher as a likely rate hike by the Federal Reserve (Fed) is now only a few weeks away. As far as energy is concerned, oil5 finished last week trading at $46.09 a barrel ahead of an important Organization of the Petroleum Exporting Countries (OPEC) meeting scheduled to take place this week where a potential production cut will be considered.

    The Federal Reserve Open Market Committee (FOMC) will meet once more before the end of the year on December 13 -14. Following this meeting, it is likely that Janet Yellen will announce the first rate hike since December of 2015. The market is pricing in a 0.25% increase in the Federal Funds Target Rate as the economic conditions that the Fed weighs most heavily have steadily improved. Per the Federal Reserve’s dual mandate, the FOMC must conduct monetary policy in manner that supports “full employment” while maintaining an appropriate level of inflation. Weekly readings on Jobless Claims have continued to trend downward and have been below 270,000 since June of this year. The most recent monthly report on the Employment Situation, released on November 4, showed an U-3 unemployment rate of 4.9% and a higher than expected gain in average hourly earnings. We will get one more look at this monthly report before the FOMC meets when November data is released on Friday, December 2. While there are many measures of inflation, the Fed tends to prefer the Core Personal Consumption Expenditures Index, also known to many as Core PCE. The latest release of this indicator showed a year-over-year change of 1.7%, not too far from the long term goal of 2.0% the Fed has stated as their goal. Short of a major shock, it appears nearly certain that a 0.25% hike in the Federal Funds Target Rate will be announced in December though we continue to believe that it is the pace and degree of future hikes that matters most.

    Oil has been a major story for the past two years and continues to dominate headlines. Currently, OPEC’s upcoming meeting in Vienna is grabbing headlines. Last week, it was widely believed that production cuts would be announced between OPEC members and certain Non-OPEC countries such as Russia. When markets closed Wednesday afternoon heading in the Thanksgiving holiday, oil has risen nearly 5% on the week. Since then, however, drama has unfolded and the likelihood of a deal has fallen into question as Saudi Arabia cancelled a November 28 meeting with non-OPEC members upsetting certain members. We expect the price of oil to remain volatile and do not put too much faith in any announcements until clear actions to reduce current levels of production are taken.

    Asset allocation has long been considered to many to be one of the most important decisions an investor makes. Part of the asset allocation process involves understanding how to maintain exposure to different asset classes as prices change and your exposure to different markets shifts. We believe, given the upcoming events discussed above, that approaching your investment strategy with a clear appreciation of your long term financial goals is necessary in order to succeed. To have Hennion & Walsh’s financial planning department help you understand your goals, or to better understand your current asset allocation, please do not hesitate to speak with a 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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