Multiple Milestones Reached Last Week and International Stocks Stage a Comeback
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 08/24/18. Rates and Economic Calendar Data from Bloomberg as of 08/27/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global stock markets finished the week in positive territory with emerging markets leading the way, trying to claw their way back in what has been a difficult 2018 for the group thus far. In the U.S., the S&P 500 Index, Dow Jones Industrial Average, and the NASDAQ Composite gained 0.88%, 0.51%, and 1.67% respectively. Overseas, the MSCI EAFE Index rallied 1.56% and the MSCI Emerging Market Index gained 2.71%. International equities have lagged U.S. Equities thus far in 2018, despite their out-performance in 2017, but appear to to be at an inflection point in our view. Valuations (on a current P/E and forward P/E basis), global economic growth forecasts, and accommodative international central bank policies all may provide upside possibilities for international stocks.
The week started off optimistic with strong earnings reports from certain retailers as Lowe’s and Target beating analyst estimates. A rebound in commodity prices and rumors of a possible meeting between President Trump and President Xi of China, with the hopes of alleviating some of the “trade war” concerns, also provided tailwinds to the market. The big news early in the week was the S&P 500 Index rallying on Tuesday to a new record high intraday, the first time since January of this year. Unfortunately, stocks would eventually give back these gains later in the day, possibly due to the news out of Washington relating to criminal proceedings against two former associates of President Trump. Wednesday was another record setting day when the current bull market turned 3,453 days old, the longest on record edging out the October 1990 – March 2000 run. Continuing the streak of positive news, investors seemed to have been comforted by Fed Chairman Powell’s speech at the Jackson Hole Symposium in Wyoming on Friday, which suggested a continued gradual pace was still appropriate for interest rates. Friday, the S&P 500 Index and the NASDAQ were able to close at record highs.
Major averages extended gains from Friday’s rally to start this week on trade speculation and eventual reporting. The U.S. and Mexico agreed on the framework for a new trade deal, that will replace NAFTA, potentially called the United States-Mexico Trade Agreement. This particular deal does not include Canada presently, who has been absent from recent trade talks. Later this week we’ll keep an eye on the economic calendar as reports of the second estimate of second quarter GDP will be released, which is still expected to be 4%+, along with an inflation reading which is expected to show prices rose 2.3% over the prior year in July.
Investors as a whole have been rewarded for taking a long term investment approach during this historic bull market run. We continue to believe that there is more upside potential on both domestic and international fronts. Accordingly, we encourage investors to remain invested, stay disciplined and work with a financial professional to help manage their portfolio through various market cycles as best as possible within a well-diversified portfolio that is consistent with their objectives, timeframe and tolerance for risk.
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 REITs that primarily own and operate income-producing real estate.