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Market Overview

Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 12/31/15. Rates and Economic Calendar Data from Bloomberg as of 1/4/16.

Happening Now                   

Stocks around the world fell sharply on the first trading day of 2016 with the S&P 500 index losing 1.53%, the Euro Stoxx 50 index falling 3.14%, and the Japanese Nikkei 225 index dropping 3.06%. This was sparked by a now second time offender; the Shanghai stock market (or the Shenzhen CSI 300 index), which fell 7% causing trading to be halted for the day. The halt in trading spooked the markets around the world and led to traders selling riskier assets. Readers may remember that China caused headaches back in August of 2015 when the surprise devaluation of their currency led many to speculate that China’s economy was grinding to a halt and sparked a global selloff that lasted through September, only to recover in the months that followed.

This time around, the release of weak manufacturing data reportedly led to a decline in Chinese shares of 5% which triggered newly implemented “circuit breakers” to halt trading for 15 minutes. Upon the reopen, shares dropped an additional 2% causing the exchange to halt trading for the remainder of the session. These circuit breakers, which only went into effect on Monday and are designed to prevent massive sell-offs, could have themselves accounted for a large part of the volatility. After all, on the economic front, the Chinese manufacturing data release was not that surprising – it was the tenth consecutive month that the Purchasing Managers Index (PMI) disappointed, registering 48.2 versus the expected 48.6, a miss of just 0.4.

Regardless of the volatility that greeted investors in 2016, we believe that there currently are no sustainable economic concerns that should cause a prolonged sell-off in U.S. and global stock markets. To the contrary, some pundits are suggesting that the rocky start of the first trading day of the 2016 may be a precursor to overall market performance for the New Year, perhaps confusing the January Barometer theory, which looks at stock market performance for the entire month of January as an annual market performance indicator. In this regard, it is important to remember, that as of the time of this writing, the month of January has only just begun and this theory has only shown to be an accurate annual market predictor roughly 50% of the time.

Volatility serves as a nice reminder that investors should not be concentrated in any one asset class. During periods of wild swings in stock prices, assets classes such as fixed income, commodities, and currencies can provide investors with some form of a safe haven. Those who do not have exposure to a diversified set of asset classes may be assuming unnecessarily high levels of risk that they may not be getting rewarded for. If you would like to learn about how much downside protection is in place in your own portfolio, please don’t 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.

Definitions

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.