Market Commentaries

  • Economic Data Impresses and the Federal Reserve Pivots on Rate Hiking Path


    Market Overview


    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 02/01/19. Rates and Economic Calendar Data from Bloomberg as of 02/04/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

    Happening Now                   

    Global equity markets continued to bounce back from 2018 lows, as nearly every notable index produced positive returns last week. In the U.S., the S&P 500 Index pressed ahead to a level of 2,707, representing a gain of 1.62%, while the Russell Midcap Index gained 2.09% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 1.31%. On the international equities front, developed markets moved 0.95% higher, while emerging markets gained 1.74%. Finally, the 10-year U.S. Treasury yield finished the week at 2.70%.

    Last week, in a highly anticipated announcement, the Federal Reserve decided to keep the federal funds target rate unchanged in a range of 2.25% – 2.50%. The Fed’s decision to leave rates unchanged following this particular meeting was largely expected, but most did not expect the Fed to strike such an overwhelmingly dovish tone in post-meeting communications. Since Jerome “Jay” Powell has taken the helm as the Chairman of the Federal Reserve, the Fed has repeatedly stated that they would remain data-dependent with regards to the pace at which they increase benchmark interest rates. In other words, if a handful of economic variables used to judge the health of the U.S. economy met a certain threshold, the Federal Reserve would be forced to increase interest rates, potentially disregarding exogenous factors (i.e., enhanced geopolitical & economic risk). However, last week’s dovish message seemingly reversed course.

    Following last week’s rate decision, communications from the Federal Reserve explicitly stated that the Fed plans to remain “patient” and embrace a “wait-and-see” approach in regards to raising interest rates and reiterated that they are not necessarily on preset course in terms of shrinking the size of their balance sheet. More importantly, they went on to essentially say that the philosophy of the Fed wasn’t changing because of economic weakness in the U.S., but instead because of global economic and geopolitical concerns. Consider January U.S. non-farm payrolls, which increased by more than double analyst expectations as 304,000 new jobs were created, as evidence of this change in philosophy. In the past, an economic report this impressive likely would have forced the Federal Reserve to accelerate monetary tightening, rather than shift to a more accommodative stance.

    While investors should find solace in the Federal Reserve’s assessment of the U.S. economy, they should also find angst in the confluence of risks currently facing the global economy. During times of uncertainty and increased risk, proper portfolio diversification can be critical. As a result, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios. If you would like to learn more about how we are helping clients invest dynamically and consistently with their own goals, time-frame and tolerance for risk, please do not hesitate to speak with your Hennion & Walsh Financial Adviser.

    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 REITs that primarily own and operate income-producing real estate.

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