Market Commentaries

  • Reallocating Portfolios for the New Year


    Market Overview

    Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 1/6/15; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers as of 1/5/15


    Happening Now

    Reallocating Portfolios for the New Year

    Global markets have started the year facing a complex geopolitical and economic puzzle. The United States and the United Kingdom are poised to move towards tighter monetary policy while the European Central Bank looks to battle deflationary pressures through its own stimulus measures. The Bank of Japan is embarking upon an unprecedented stimulus package that involves not only the purchase of government debt but also stocks and real-estate1. Oil is currently trading at 5 year lows2 while the dollar’s strength is pushing the Euro down to trade below $1.20. There is no clear solution to the conflict in the Middle East while tensions in Russia, Ukraine and North Korea continue.

    How are investors supposed to account for all of these situations in their portfolios and what tactical changes can they make that may provide growth opportunities without adding too much risk? These are the questions we endeavor to answer each day for our clients. Given the complexities of the international market place, figuring out how to allocate your portfolio can be a daunting task. At Hennion & Walsh, we try to first understand where we are in the economic cycle, both domestically and globally, and then forecast the direction and pace of growth (or lack thereof). This type of forecasting requires an analysis that goes beyond the scope of today’s update.  However, all investors should incorporate some type of economic analysis, or at least adhere to a third party’s viewpoint of economic growth or contraction. This will help to ensure consistency when making investment decisions that might otherwise be skewed by short term headline noise or a temporary change in investor emotion.

    Currently, we expect continued economic growth from the U.S. which will fuel a continuation of the secular bull market we believe we are in the midst of. This will be accompanied by a commencement of modestly rising interest rates in the U.S. as the Fed begins to tighten towards the second half of the year and the yield curve flattens. Internationally, European markets are expected to see-saw in the short term with expectations of monetary easing from the ECB. In the intermediate to long term, however, we still contend that the divergence in monetary policies and more attractive valuations of European equities present opportunities for investors seeking capital appreciation. For a more in detailed review of our forecast, we recommend reading our Winter 2015 Market Outlook by clicking here .

    We encourage you to review your 2014 performance and the level of risk associated with your investment strategy. If you have any questions about how to best allocate your investments in 2015 or would like to better understand the screening process we use when choosing Investment strategies, please speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.



    Important Information and Disclaimers

    Past Performance is not a guarantee of future performance.

    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 U.S. companies based on total market capitalization and represents about 98% of the investible U.S. Equity market.

    ML BOFA U.S. Corp Mstr [Merill Lynch U.S. Corporate Master]:  The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire U.S. corporate bond market over time.

    ML Muni Master [Merill Lynch U.S. 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.

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