Stocks Advance despite Uncertainties
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 2/10/17. REIT, Rates and Economic Calendar Data from Bloomberg as of 2/13/17.
In an otherwise choppy week of trading amidst light economic data, major averages advanced on Thursday and Friday following a statement from Trump to unveil a “phenomenal” tax plan, fulfilling a campaign pledge, in the coming weeks. U.S. stocks advanced 0.9% last week as the S&P 500 Index reached a new all-time high of 2,316. This level represents a year-to-date gain of 3.4%. The Russell Midcap Index continues to be the best preforming market capitalization segment of the U.S. market thus far in 2017 with a 1% gain last week taking the index’s year-to-date advance up to 4.3%. Small cap stocks, on the other hand, happened to be last week’s and this year’s laggards – though still positive. For example, the Russell 2000 Index gained 0.8% last week and is up 2.4% thus far in 2017. On the international front, developed markets as measured by the MSCI EAFE Index, finished the week with a slight loss of 0.02% while the MSCI Emerging Markets Index climbed 1.25%. International stocks continue to outperform their U.S. counterparts thus far this year, with less fanfare, with developed market equities up 3.5% year-to-date and emerging markets up an impressive 7.9%.
As you may recall, at the start of this year, we outlined uncertainties that will either positively or negatively affect the performance of the global economy and markets in 2017. They included but are not limited to; tax reform, deregulation, infrastructure spending, trade policies, immigration reform, the path and degree of monetary policy, inflation expectations, earnings growth, wage growth, geo-political risks, and finally European elections. Uncertainty however should not necessarily carry with it a negative connotation. While the unknown can be unsettling to some, the market has advanced this year despite these outstanding questions. As a result, investors who have used these issues as an excuse to sit on the sidelines have missed out on this advance. It is also interesting to see how low volatility has been in the S&P 500 Index. Consider that there have been 39 consecutive trading days during which the market has moved less than 1%. This is the longest such streak in the last 35 years. In addition, the VIX index, a measure of risk implied by the options market, is hovering near historically low levels. It is thus fair to conclude that uncertainty cannot and should not be confused with volatility.
While we at Hennion & Walsh recognize that the recent market environment has been one of low risk, we do not expect this to continue. The issues named above, we believe, ultimately present more opportunities than they do downside risks. We would suggest, however, that they will likely be the impetus for larger intra-day swings than we have seen so far this year. This is no doubt a challenging environment for an investor’s psyche and one that will test their discipline. If you would like to learn about the conversations we are having with clients, or to simply have a review completed on any stock holdings that you currently own, 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.