October Employment Report Suggests December Rate Hike Likely
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 11/06/15. Rates and Economic Calendar Data from Bloomberg as of 11/09/15.
Friday’s hotly anticipated release of the October employment situation did not disappoint. 271,000 jobs were added during the month beating estimates that ranged from as low as 150,000 to as high as 240,000. The jobless rate also fell to 5.0% from 5.1% and wages, as measured by average hourly earnings, rose 0.4% from the month prior. The strength of this release has many on Wall Street, including us, now believing that a rate hike before year end is highly likely. In fact, according to Bloomberg, the futures market was pricing in a 70% chance of a rate hike before year end during Friday’s trading.
Stocks in the U.S. (as measured by the S&P 500 index) finished the week higher to post a sixth consecutive week of gains despite falling a point in mixed trading during Friday’s session. This extends the index’s quarter-to-date return to 9.6%. Moving towards the end of 2015, volatility is likely to continue and potentially increase as we approach the December 15-16 Fed meeting, tax related trading begins, and institutional portfolio balancing takes place. This volatility may present investors with opportunities to deploy cash. If you are concerned about the potential performance of stocks during periods of higher interest rates, consider that historically there is a positive relationship between U.S. stock prices and a rising fed target rate when the 10-year U.S. Treasury yield is below 5.0%*. The 10-year U.S. Treasury yield is currently 2.32%.
When looking for new investments it is important to understand how the security, or asset class/sector, will fit into your overall portfolio and how it will affect your long term goals. To find out how much risk you are assuming today, and how a new investment may benefit or detract from your portfolio as a whole, please speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
*According to JPMorgan as of 9/30/2015
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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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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.
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.
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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.