International Stocks Finish another Week of Out-performance
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 8/4/17. Rates and Economic Calendar Data from Bloomberg as of 8/7/17. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology. S&P 500 earnings data from Factset as of 8/4/17.
U.S. Large cap stocks finished with minor gains last week while Mid and Small cap stocks fell in value. The S&P 500 Index ended the week with a 0.2% gain while the Russell Midcap Index fell 0.4% and the Russell 2000 Index dropped 1.2%. In a move counter to our note last week, value stocks outperformed growth stocks across all capitalizations. In terms of international stock performance, Developed Markets posted a 0.9% advance while Emerging Markets gained 0.5%.
Last week culminated with the release of the July Employment Report on Friday which surprised to the upside. While consensus was for 178,000 new job creations, actual payrolls increased by 209,000 and the unemployment report fell to 4.3%. Continued strength in the labor market has many economists scratching their heads as to when wage growth will follow. Wage growth is likely the missing component of the inflation equation since higher wages will weigh on corporate profit margins, forcing companies to raise prices.
A downside risk we believe to be lurking around the corner is the potential for inflation to overshoot to the upside. This would cause central banks, namely the Federal Reserve, to hike rates quickly and potentially stifle additional economic growth prospects. High interest rates in the U.S. relative to other countries could also have the negative effect of strengthening the U.S. Dollar, which would weigh on revenue derived by multi-national companies overseas. We strongly recommend that investors consider all potential risks in this market environment and how these risks can potentially impact their portfolios. If you would like to learn more about how we are helping clients navigate these markets, please do not hesitate to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
Important Information and Disclaimers
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 REITSs that primarily own and operate income-producing real estate.