Multiple Headwinds Persist But Strong Fundamentals Push Forward
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 05/04/18. Rates and Economic Calendar Data from Bloomberg as of 05/08/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Looking back at last week’s trading activity investors would be hard pressed to find any particular theme or trend in U.S. markets that was consistent throughout the week. The major stock market indexes experienced sharp declines, midday reversals, mixed results, and strong gains. The technology-heavy NASDAQ index was the only major index to finish the week in positive territory, posting a gain of 1.29%. The S&P 500 and Dow Jones indexes, on the other hand, ended the week lower, pulling back 0.21% and 0.19% respectively. However, the week did end on a positive note as stocks finished the day considerably higher on Friday following the latest jobs report. This report showed that the unemployment rate dropped to 3.9%, its lowest level since 2000.
Overall the weekly results were somewhat surprising given the strength of the 1st quarter earnings season in the U.S. thus far. Earnings and guidance have been spectacular and yet the markets seem to be equally, if not more, focused on certain headwinds and doubts. In the beginning of the year, optimism was high for additional stock market growth potential driven by fundamentals, including earnings, and global economic expansion. Now, concerns have crept into the minds of some investors over whether earnings have now peaked, the potential impact of higher interest rates, and multiple geopolitical risks. We would contend that there are still reasons to be optimistic in 2018 given robust earnings growth and a strong economic backdrop – even in the face of a gradual, continued rise in interest rates. In fact, Federal Reserve Chair Jerome Powell spoke on Monday and noted that the financial markets are aware of the Fed’s plans regarding interest rate increases and their actions should not come as a surprise.
Looking overseas, the U.S. sent a delegation, led by Treasury Secretary Steven Mnuchin, to China to discussion trade policies. The tensions brought on initially by President Trump’s proposed tariffs seem to have cooled down a bit as the two countries have had “very good conversations”, although nothing of substance has been finalized as of yet. Companies within the international emerging market of China continue to show attractive investment merit as Charlie Munger, vice chairman of Berkshire Hathaway, recently told CNBC, “The best companies in China are cheaper than the best companies in the United States.” Turning our attention to international developed markets, we’re seeing continued strength in the Eurozone and Japan in particular. Central Bank monetary policy in both regions remains accommodative and is expected to remain as such at least through the end of 2018. As was the case with the U.S. during its secular bull market run, investors would be wise to now look for stock appreciation potential in international areas supported by economic growth and low interest rates.
We will continue to closely monitor headline risks (including the impact of certain potential sanctions on the price of oil) and economic indicators but remain encouraged by global growth prospects and relatively low interest rates. This does not, however, mean that the days of volatility are behind us. As a result, investors will likely continue to benefit from an investment strategy that is well-diversified and takes their specific objectives, timeframe and risk tolerance into consideration. If you would like to learn more about how we are helping our clients navigate this market environment, or to have a comprehensive portfolio review or financial plan completed, please contact your Hennion & Walsh Financial Advisor.
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.
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