Market Commentaries

  • Economic Data Releases Caused Markets to Whipsaw Last Week


    Market Overview


    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 10/04/19. Rates and Economic Calendar Data from Bloomberg as of 10/04/19. 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 finished lower for the third consecutive week. In the U.S., the S&P 500 Index fell to a level of 2952, representing a loss of 0.30%, while the Russell Midcap Index retreated 0.63%. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, gave up the most ground of the three market capitalizations with a drop of 1.28% for the week. The lone bright spot was the tech-heavy NASDAQ Composite Index which was up 0.57%. Interestingly, there were six sectors of the S&P 500 that finished the week positive while five finished in the red. However, gains in technology and healthcare were dragged down by poor performance from energy, material, industrial, and financial sectors. On the international equities front, developed and emerging markets returned -2.16% and -0.46% respectively. In fixed income, 10 year U.S. Treasury prices strengthened sending the yield down to a level of 1.52%
    Stocks were able to end the third quarter on a positive note, however, as the tone changed mid-week. On Tuesday, the Institute of Supply Management (ISM) manufacturing PMI release showed activity falling deeper into contractionary territory (i.e. below 50) as well as a lower than expected increase in construction spending. Putting this into perspective, it is important to appreciate that manufacturing currently only accounts for approximately 12% of gross domestic product (GDP) in the U.S. while the all-important consumer continues to account for 70% of economic growth. Regardless, the manufacturing news certainly disappointed investors and bore a resemblance to the weakness seen in Europe, causing further concerns about economic growth. The negative attitude would not last too long as major averages rallied on Friday on data showing that non-farm payrolls increased by 136,000 in September and that the unemployment rate dropped to a 50-year low of 3.5%. Further helping the bounce-back was the “bad news is good news” belief relating to the opinion of some that the weak data from earlier in the week supports the need for more intervention from the Federal Reserve in the form of additional rate cuts. It’s worth mentioning that we feel further rate cuts aren’t warranted at this time as the Federal Reserve has already seemed to achieve its dual mandate of promoting full employment and stable prices.

    This week we turn to the highly anticipated talks between the U.S. and China on trade. In addition, third quarter earnings season is revving up and it will be interesting to see how slowing global growth, lower oil prices, and a strong dollar weigh on earnings. Currently, analyst consensus is calling for negative year-over-year earnings growth and positive year-over-year revenue growth. However, companies as a whole have surprised to the upside during the first two quarters of the year so we’ll see what this quarter holds. It is our contention that continued gains in quarterly revenues, recognizing that year-over-year gains in earnings over the meteoric rise in earnings in 2018, thanks in large part to reduced corporate tax rates, may not be possible or realistic, would help validate the continued strength of the U.S consumer.

    With one quarter remaining in 2019 and volatility ever-present, it becomes increasingly important for investors to stay disciplined and focused on their longer-term goals. We encourage investors to work with experienced financial professionals to help manage their portfolio through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame, and tolerance for risk.

    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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