Stocks Drop Ahead of Irma but then Bounce Back
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 9/08/17. Rates and Economic Calendar Data from Bloomberg as of 9/12/17. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology. S&P 500 earnings data from FactSet as of 9/08/17.
Stock markets around the world posted mixed results last week as the U.S. prepared for Hurricane Irma and considered the potential for another missile test from North Korea. The S&P 500 Index dropped 0.6%, the Russell Midcap Index fell 0.7%, and the Russell 2000 Index, a gauge of small cap stocks, declined 1.0%. On Monday, however, U.S. markets quickly reversed course by gaining over 1%, providing yet another sign of the resiliency of this particular bull market run. International stocks also displayed their diversification benefits last week with developed markets gaining 0.8% and emerging markets finishing essentially flat with a 0.04% move higher.
A cautious tone was taken last week as Hurricane Irma, then a Category 5 storm and the strongest ever to form in the open Atlantic Ocean, took direct aim at Miami. Insurers sold off as evidenced by the SPDR S&P Insurance ETF’s (Ticker: KIE) fall of nearly 3% on the week as estimates for damages soared to $200 Billion. The humanitarian toll is not to be understated – lives were lost, thousands displaced, and homes ruined. The economic impact, however, appears to now be a fraction of the initial estimates. The damages caused by Irma and Harvey certainly have weighed on local economies and may have short term effects on national economic data but we do not believe they will have a lasting impact. We continue to suggest that we are in the expansionary phase of the business cycle and expect the secular bull market to continue. This sentiment appears to be shared by other investors as well considering the S&P 500 Index rebounded by gaining over 1.0% during Monday’s trading session.
In addition to Mother Nature causing concern, many market participants had speculated that North Korea, in celebration of their 69th anniversary, would launch another missile this past weekend. Fortunately, this did not occur. The market’s slight decline last week, in part due to this concern, underscores the vulnerability of equities to a potential crisis on the Korean peninsula, namely, the disruption in economic activity that the geopolitical event would likely cause. When forecasting, it is critical to consider the probability of an event and not to let recency bias skew reality. The bombardment of media headlines may cause some to believe that a war with North Korea is probably a foregone conclusion. Given the facts as they stand, however, we do not believe actionable escalation will occur and are not adjusting our market outlook at this time.
On a lighter note, the NFL season kicked off this past weekend to the delight of millions. One term coaches preach to football players of all ages is to “keep your head on a swivel.” In other words, don’t let anyone sneak up and blind side you. We believe this advice is also applicable to investing. While investors should not overreact to every headline that scrolls across their screen, they should always be looking out for developing events that may derail the economy and negatively impact stock markets. If you would like our professionals at Hennion & Walsh to review your portfolio and help identify potential vulnerabilities, please do not hesitate to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
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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.
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