Market Commentaries

  • “Sell in May and Go Away” may not Ultimately Hold True in 2019

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    Market Overview

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    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 05/24/19. Rates and Economic Calendar Data from Bloomberg as of 05/24/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

    Happening Now                   

    Global equity markets declined for the third consecutive week heading into the holiday weekend. In the U.S., the S&P 500 Index and the Dow Jones Industrial Average declined 1.14% and 0.63% respectively while the tech-heavy NASDAQ suffered the largest losses of the major equity indexes, retreating by 2.28%. Despite the recent struggles, major U.S. index returns remain over 10% year to date (YTD). Overseas, the MSCI Developed Market Index and the MSCI Emerging market Index returned -0.48% and -0.86% respectively for the week. Over in fixed income, U.S. Treasury yields continued to fall as prices rose. As trade issues between the U.S. and China persist, and in the face of a slowing economy, the move to safety drove the 10 year U.S. Treasury to yield 2.32% to close the week. This represents a decline in yield of 7 basis points (Bp) week over week, 37 Bp YTD, and nearly 66 Bp since this time last year.

    You may be familiar with the old stock market adage of “Sell in May and Go Away”. This well-known mantra refers to the perceived, and often realized, historical under-performance of the stock market during the summer months. Warmer weather sets in and scheduled vacations are approaching leading to fewer market participants and, in turn, generally lower volume, thus creating a potentially riskier market environment. The seasonal pattern has held up surprisingly well historically, and while it has not been the case in recent years, it just so happens that the phenomenon seemingly reappeared at the end of April. This year, however, the short-term volatility has predominantly been the results of heightened trade tensions between the U.S. and China and investors questioning the pace of global economic growth looking ahead. Some form of a trade agreement in the near future could certainly buck the trend and create more upside for equities for the balance of 2019.

    Economic updates will be light this week during the holiday shortened trading session. However, we will be keeping an eye on Thursday’s first quarter gross domestic product (GDP) update, Friday’s PCE Deflator (often viewed as an inflation gauge), as well as updates on consumer spending. In the face of potential continued periods of heightened volatility this summer and throughout the remainder of 2019, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolio through various market cycles within a well-diversified framework that is consistent with their own specific objectives, time-frame and tolerance for risk.


    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.
    China Trade
    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 REITs that primarily own and operate income-producing real estate.

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