Global Equities Come Under Pressure to Start September09-11-2018 |
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 09/07/18. Rates and Economic Calendar Data from Bloomberg as of 09/10/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Stock markets around the world struggled to start the month of September (historically one of the more difficult months for stocks). In the U.S., the major averages all finished in the red. The S&P 500 Index retreated 0.98%, the Dow Jones Industrial Average was down 0.14%, and the NASDAQ was hit the hardest as it declined by 2.53% for the week. On the international front, the MSCI EAFE Index dropped 2.83% while the MSCI Emerging Market Index was down 3.06%. This is particularly disappointing following two consecutive weeks of strong returns for both indexes. Despite the lingering issues of potential trade wars and a strong U.S. dollar that may have been weighing on international equities, we contend that international equities may be at, or near, an inflection point. Recognizing that there are still many risks and uncertainties, valuations, global economic growth forecasts, and accommodative international central bank policies all provide upside possibilities for international stocks in our view.
A bright spot for the week came from multiple, encouraging U.S. economic data releases. The ISM release showed the pace of manufacturing in August accelerated the most since May 2004 and the service sector grew at a quicker than expected pace. Friday morning we saw the monthly jobs report from the U.S. Labor Department. The report showed that payrolls rebounded more than expected and wage inflation increased 2.9% year-over-year in August, topping consensus forecasts of a 2.7% gain. This week we’ll see updates on the Consumer Price Index, Producer Price Index, and consumer credit to name a few.
News out of Washington DC will continue to be important. Republicans in the House of Representatives are reportedly planning to propose new tax cuts sometime this week. In addition, the U.S. and Canada are continuing to negotiate a new trade agreement to replace NAFTA and we’re still going back and forth with China.
During times of uncertainty, portfolio diversification becomes increasingly important. As a result, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios.
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.