Stocks Gain on Economic Data while North Korea Tensions Mount
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 9/01/17. Rates and Economic Calendar Data from Bloomberg as of 9/05/17. 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 9/01/17.
U.S. stocks had one of their best weeks of the year as geo-political concerns took a back seat to strong economic data. The S&P 500 Index gained 1.4%, the Russell Midcap Index gained 1.5%, and the Russell 2000 Index, a gauge of small cap companies, advanced 2.7%. On the international front, developed markets ended the week 0.6% higher while emerging markets moved 0.7% to the upside.
Last week was a busy one for those with an eye on economic data. A revised estimate of second quarter U.S. Gross Domestic Product (GDP) was released last Wednesday and showed that the economy grew at an annualized pace of 3.0% during the quarter, besting consensus calls for a 2.8% gain. In addition to GDP, monthly reports on consumer confidence, personal income, and employment were also released. Despite saber rattling with North Korea, U.S. consumers have refused to let their confidence be shaken. The Conference Board’s consumer confidence index moved higher to a 122.9, the highest reading since March. The monthly personal income report showed both income and inflation growing only moderately and in line with expectations. While there are a few different means of calculating inflation, the Federal Reserve prefers personal consumption expenditures (PCE) when making monetary policy decisions. PCE Inflation is released alongside personal income and showed prices rose 1.4% versus last year, below the Fed’s target of 2%. Inflation, which typically increases with growth, has been absent and is one of the main contributors to the persistently low level of interest rates. Finally, the monthly employment report released Friday showed that 156,000 jobs were added during August, missing estimates which called for 180,000 new hires. This led to a slight tick up in the unemployment rate from 4.3% to 4.4%.
While U.S. economic data was highlighted above, investors also need to consider the health of the global economy. Fortunately, the global economy is experiencing a period of synchronized growth. This is the first time since 2010 that most major countries and economies are advancing, albeit at different rates, at the same time.
Uncertainties continue to persist, however, and include the ongoing geo-political issues stemming from North Korea, as well as the U.S. Government’s upcoming debt ceiling negotiations. Goldman Sachs pointed out in note during the week that, historically, volatility has been higher from September to November than during other months of the year. Couple this with already high valuations in most asset classes and investors would be wise, in our view, to ensure that some form of downside protection is in place within their own respective portfolios. We continue to suggest that we are in the midst of secular bull market but recognize the potential for intermittent bouts of volatility.
We, at Hennion & Walsh, continue to believe in the long term benefits that a diversified portfolio can provide. In terms of how to decide upon the proper asset allocation strategy, however, investors need to understand their objectives, time horizon, and risk tolerance. The best method for making these determinations is by completing a financial plan. If you would like to learn more about Hennion & Walsh’s financial planning process, or to simply have a 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.
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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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