Stock Market Return Expectations may be Low but they are Still Positive
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 11/27/15. Rates and Economic Calendar Data from Bloomberg as of 11/30/15.
Equity investors appear to be holding back in advance of December’s hotly anticipated Fed rate hike decision. At this time, 74% of traders are expecting a rate hike announcement when the Fed releases their policy statement at the conclusion of their December 15th – 16th meeting according to Bloomberg. In addition, JP Morgan’s strategy team said last week that they have yet to come across a client who does not think that a rate hike will be announced. Perhaps this anticipation is why, despite a swath of economic data releases that would typically be expected to move markets, stocks have remained in a relatively tight trading range.
The S&P 500 Index rose 0.08% during the holiday shortened week while the Dow Jones Industrial Average fell 0.10%. These two benchmark indices are now up 3.48% and 2.18% this year on a total return basis. In terms of sector performance, Consumer Discretionary and Technology stocks remain the best performing groups for 2015, up 14.2% and 8.3% respectively. Energy and Utility stocks, on the other hand, are the worst performing groups, down 12.9% and 7%. On the international front, developed countries as measured by the MSCI EAFE Index fell 0.47% faring better than emerging markets which lost 2.02% and are now down over 16% for 2015. The broad based slump in commodity prices ranging from oil to copper, as well as fears of too much underlying leverage in these countries, have contributed to the recent weakness in the emerging markets.
With low single digit returns in most asset classes this year, investors should be weary of expecting the double digit returns that most U.S. stocks experienced in 4 out of the last 5 years. Looking ahead, the consensus among Wall Street strategists is for the S&P 500 Index to again produce single digit returns in 2016. With the likelihood of “low” rates of return in 2016 and the always present risk of an exogenous shock causing a downturn, asset allocation should remain at the forefront of investor mindsets. To learn more about how your portfolio is currently positioned or how we are allocating client assets for 2016, please do not 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.
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.