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Market Overview

Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 10/27/17. Rates and Economic Calendar Data from Bloomberg as of 10/30/17. 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                   

U.S. large cap stocks were one of the only areas of the global stock market to register a positive return last week. The S&P 500 Index gained 0.2% and is now up 17.2% since the start of the year. Balance was required in order to have captured last week’s gains, however, with large cap value companies falling 0.5% and growth companies gaining 0.9%. This should help reinforce the importance of understanding not only what sectors you are exposed to within your portfolio but also the general characteristics of your underlying stock holdings. Elsewhere domestically, the Russell Midcap Index fell 0.4% while the Russell 2000 Index, a widely recognized measure of small cap stocks, lost 0.1%. On the international front, developed markets fell 0.3% while emerging markets lost 0.8%.

The first estimate of third quarter U.S. Gross Domestic Product (GDP) stole the show last week, growing at a 3% rate and blowing past most estimates. Market reaction to this report was somewhat quiet, however, which causes us to wonder how much of the “strong economic growth” story has already priced into the market’s gains over this bull market run.

We realize that week-to-week performance of different asset classes and geographic regions will wax and wane as developments emerge that can be expected to impact long term returns. Despite these short term swings, the synchronized global economic expansion combined with low inflation and favorable financial conditions has most asset classes registering positive returns this year. To this end, nine of the eleven sectors of the U.S. stock market, with the exception of energy and telecom, are in the green since the start of 2017. Telling a similar story, ten of the eleven global stock market sectors have also registered gains for the year, again with the exception of energy. On the fixed income side, U.S. treasuries, municipal bonds, corporate bonds, and high yield bonds have all generated positive returns thus far in 2017. Looking at commodities, oil is down on the year but precious metals, industrial metals, and agricultural commodities are all up in value.

While the above mentioned asset classes happen to currently be moving in the same direction, different and distinct forces are propelling them. Stocks have moved higher on the back of earnings growth and a solidifying economic foundation. Bonds have been benefactors of the lack of inflation and are still generally appreciated for their low relative levels of volatility and income producing nature. Industrial and agricultural commodities are enjoying the global economic growth story while precious metals have been an attractive hedge for geo-political concerns. Having an understanding of what drives the returns of a given asset class, at a fundamental level, is critical, in our view, to help determine the potential for future returns and volatility. We caution all investors from getting lulled to sleep in the face of low volatility and stress the need for a forward looking analysis of their holdings and overall portfolio strategy. If you would like to have your portfolio reviewed before year end, 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.

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 REITSs that primarily own and operate income-producing real estate.