Drama Ahead of OPEC Meeting while the Fed Waits around the Corner11-29-2016 |
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.
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.
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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.
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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.