Investors Retreat after Positive Economic Data Reports05-17-2016 |
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.
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.
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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.
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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.
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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.
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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.