Market Commentaries

  • Investors Retreat after Positive Economic Data Reports


    Market Overview


    Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 05/13/16. Rates and Economic Calendar Data from Bloomberg as of 05/17/16.

    Happening Now                   

    Positive reports on retail sales, producer prices and consumer sentiment were not enough to stave off a decline in stock prices at the end of the week as the Dow Jones Industrial Average (DJIA) finished Friday down 185 points to a closing level of 17535. Friday’s sell-off was widespread as all 10 sectors of the S&P 500 index (S&P 500) finished lower for the day. Overall for the week, the DJIA lost 1.04% while the S&P 500 declined by 0.44%. International markets were also slightly down for the week with the MSCI EAFE index and the MSCI Emerging Market index finishing lower by 0.25% and 1.125% respectively. On the other hand, bond markets, which generally tend to benefit from increases in stock market volatility, finished higher for the week as the Barclays US Aggregate index advanced by 0.28% and the Barclays US Municipal Bond 10 Year index gained 0.25%.

    Some of the apprehension that investors may be feeling at this stage is that the positive stream of economic data reports coming out of the U.S. are putting the Federal Reserve in a position where they will more than likely raise interest rates by another 25 Bp (i.e. 0.25%) at either their June or July meeting. In other words, good news is bad news in this context. Additional tightenings by the Fed could lead to a further strengthening of the U.S. Dollar and have an impact on U.S. large cap, multi-national companies that derive a significant portion of their revenue overseas. Some also fear that a strong U.S. Dollar could cripple the impish economic recovery taking place in Europe as well as other developed and emerging market regions of the world. The outlook for Europe is even more unclear as investors await the results of a potential exit by Great Britain from the European Union (a.k.a. “Brexit”). As a result, global stock markets took on more of a “risk-off” stance last week and the U.S stock market, measured by the S&P 500, is now essentially flat for the year of 2016.

    At Hennion & Walsh, we see opportunities ahead for investors in a slow growth economic environment accompanied by gradual interest rate increases by the Fed, and perhaps intermittent sales of existing U.S. Treasuries on their balance sheet, if they consider a wide range of asset classes and sectors in a diversified portfolio framework. To hear more about the current areas of the market that we find attractive or to request a free portfolio review, please 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.

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