Market Commentaries

  • Good Riddance, May!

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    Market Overview

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    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 05/31/19. Rates and Economic Calendar Data from Bloomberg as of 05/31/19. 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                   

    A breakdown in trade talks between the U.S. and China, along with the surprising new threats of additional tariffs on Mexico, led to a return of stock market volatility in May as investors feared a potential, prolonged trade war that could cripple global economic growth potential. Following a strong first four months of the year, stocks pulled back during the month of May, including the first losing month for U.S. stocks thus far in 2019. For the month, the Dow Jones Industrial Average lost 6.32%, the S&P 500 Index decreased by 6.35% and the technology-heavy NASDAQ Composite Index retreated 7.78%. Negative results could also be found overseas as the MSCI EAFE, the MSCI Emerging Markets and the MSCI Frontier Markets Indexes all posted monthly losses of 4.70%, 7.78% and 0.46% respectively for the month of May.

    Leaving the volatile month of May, some may be looking to follow the often-cited Wall Street adage of, “Sell in May and Go Away.” There is some historical credence for this adage as, according to a recent MFS report entitled, “By the Numbers”, three of the four months following May rank as the bottom three performers for the S&P 500 Index over the last 25 years. September is ranked 10th of the 12 months with an average total return loss of 0.10%, June is ranked 11th with an average total return loss of 0.12% and August is ranked last with an average total return loss of 0.58%.

    This year, however, the volatility that the markets experienced in May was predominantly the result of heightened trade tensions between the U.S. and China and investors questioning the pace of global economic growth looking ahead. In our view, some form of a trade agreement in the near future could certainly buck the trend and create more upside for equities for the balance of 2019. Of course, if additional tariffs go into place between the U.S. and China (and now Mexico) and trade talks break down even further, additional stock market volatility can be expected.
    While we remain cautiously optimistic regarding the growth potential of the global economy overall, we understand that known headwinds and unforeseen risks are ever-present. One way to help defend against such risks is by building and maintaining a diversified portfolio consistent with the longer term financial plan of each individual investor. In this regard, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios and update (or complete) their financial plans as appropriate. 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.


    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.
    China Trade
    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.

    Definitions

    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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