Stocks Gain during a Busy Week
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 12/01/17. Rates and Economic Calendar Data from Bloomberg as of 12/04/17. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
U.S. equities had their second best performance of the year gaining 1.6% last week despite a sharp intra-day decline on Friday when the Dow Jones Industrial Average fell over 300 points. The Russell Midcap Index grew 1.5% on the week while the Russell 2000 Index moved 1.2% higher. On the international front, developed markets advanced 1.8% but were outpaced by emerging markets which gained 3.3%.
Daily volatility has been remarkably low this year. Including last Tuesday’s 1.01% gain, the stock market has only experienced ten days in 2017 during which the market moved in either direction by more than 1%. To put this in perspective, consider that historically the market moves 1% or more 60 different times through the average year.
Last week’s pick up in volatility can be attributed to a mix of strong economic data, progress on the tax reform front, and Robert Mueller’s investigation. Economic data came in very strong last week led by the second estimate of GDP which showed the economy expanded at an annualized rate of 3.3% during the 3rd quarter. Jobless claims, inflation, and manufacturing all also posted robust results suggesting the economy will enter 2018 with solid momentum behind it. On the tax reform front, optimism on Tuesday propelled stocks higher but gave way to a brief period of pessimism Thursday that caused stocks to finish off of their highs. Finally, on Friday when news broke that Senate Republicans had secured enough votes to pass their version of the bill, stocks clawed their way back from a sharp intra-day decline to finish with a minor loss of 0.2%. Prior to Friday afternoon’s rebound, the market had sold off on news of Michael Flynn’s indictment highlighting the ongoing potential for short term intra-day swings fueled by politics.
Clearly the markets continue to pay attention to what happens with tax reform. The relatively sharp swings in stock prices last week are evidence of this fact. Last week’s market performance, specifically the gains on Tuesday and Friday’s rebound, suggest that tax reform remains only partially “priced in.” Should a bill make it through the congressional gauntlet we believe that it will serve as a tailwind to stock prices and combine with economic momentum to form an attractive backdrop for equities in 2018. With the holiday season quickly approaching we encourage investors to take the time now to review their positioning for the end of the year. If you would like to have a complementary portfolio review completed, 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.
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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.
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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.