Stocks Little Changed on Brexit and Fed Uncertainty
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 06/13/16. Rates and Economic Calendar Data from Bloomberg as of 06/10/16.
U.S. Stocks had a mixed week with the S&P 500 Index losing 0.11% and the Dow Jones Industrial Average gaining 0.35%. On the international front, developed markets continue to lag their emerging market counterparts with the MSCI EAFE Index losing 1.72% and the MSCI Emerging Market Index gaining 1.05%. Developed international markets are now down 2.23% this year, lagging Emerging Markets (which are up 4.65% year-to-date) by nearly 7%.
Federal Reserve policy and the upcoming “Brexit” vote in Great Britain continue to dominate the headlines and serve as a source of uncertainty for market participants. The Federal Reserve is set to begin their two day meeting on Tuesday, June 14 which will be culminated with the release of their statement and economic projections as well as a press conference where Fed Chair Janet Yellen will offer additional insights into their closed door discussions. Despite our belief that the U.S. economy is able to now withstand marginally higher interest rates; as of the time of this writing, the implied probability for a rate hike of 0.25% being announced on Wednesday is only 2%, according to CME Group. Remember that a month ago, following stable economic data and strong market performance, the probability for a rate hike at the June meeting was 30%. Should no change in monetary policy be announced on Wednesday, focus will turn to the next Fed meeting, scheduled to take place only 6 weeks later on July 27.
The UK’s EU membership referendum, or “Brexit,” is yet another source of uncertainty drawing investor attention. Voting will take place on Thursday, June 23 and the stakes are high amid a polarized voter base. The most significant implications of Britain’s membership are with regard to trade, visa free travel, and regulatory costs. Should the people of Britain decide to stay in the EU, we expect somewhat of a rally in global stock prices since concerns over this decision have caused outflows from European stock funds over the past few weeks as well as a general risk-off sentiment in the U.S. and other nations. On the other hand, should they decide to leave the EU, there will likely be a short term sell off in both U.K. and European stocks. Ultimately, however, we are optimistic that should Britain leave the EU, they will have better flexibility to negotiate their own trade pacts, further distance themselves from certain weaker EU members, and perhaps garner better, long term economic prospects.
The underlying source of volatility is something all investors should either understand themselves or at least recognize as impactful. For most people, this requires working with a professional portfolio manager who can incorporate current events into both their short and long term investment plan. If you find yourself concerned with the recent uncertainty or simply want to make sure you are positioned to withstand additional volatility ahead, please do not hesitate to speak with a 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.