Stocks Hit All-time Highs Again Despite Soft Jobs Data06-06-2017 |
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 06/02/17. Rates and Economic Calendar Data from Bloomberg as of 06/05/17.
U.S. Stocks generated positive returns across all market capitalizations last week. Small caps led the way with the 1.7% advance of the Russell 2000 Index followed by the Russell Midcap Index’s 1.2% move higher and the 1% gain of the large cap dominated S&P 500 Index. Internationally, results were mixed with developed market countries finishing the week with a 1.7% gain while emerging markets fell slightly by 0.1%.
With markets sitting atop all-time highs, investors focused on last Friday’s employment report for clues about the health of the U.S. economy as well as the outcome of the Federal Open Market Committee’s upcoming meeting on June 13-14. Friday’s report surprised economists with non-farm payrolls growing 138k in May, below estimates for a gain of 185k. Despite fewer job gains than expected, the headline unemployment rate fell to 4.3% – the lowest level since May 2001. In addition to the headline U-3 unemployment rate, which only takes into account those unemployed who are actively looking for work, the Bureau of Labor Statistics (BLS) also releases a broader measure called the U-6. The U-6 rate considers those working part-time but looking for a full time job as well as discouraged workers who have quit looking for work. This measure fell to 8.3% in April, its lowest reading since 2007, and is more evidence that the labor market continues to tighten. Historically, and intuitively, a tighter labor market should lead to higher wages. However, this has not yet happened in a meaningful way as wages grew at annual pace of only 2.5% in May.
Despite the weakness in these reports, and other recent economic data, the Federal Reserve appears set to raise rates by another 0.25% at the conclusion of their June meeting, with the market now pricing in a rate hike probability of 95%. While we do not believe this will have a meaningful impact on most asset prices, it will provide insight into the Fed’s current view of economic conditions. In addition to their prepared statement, this meeting will be accompanied by Chair Yellen’s press conference where the media will have an opportunity to prod for details on the committee’s view of the economy and future potential changes to monetary policy.
We, at Hennion & Walsh, believe that we are currently in a rather stable economic environment accompanied by slow, but steady, economic growth. These conditions will likely not be significantly altered by a higher Fed Funds Target rate but investors would be wise to consider how their investments will perform if, and when, the Fed tightens further in the future. If you would like to see how your portfolio may perform in the face of rising interest rates, or simply to develop a better understanding of your existing asset allocation strategy, please do not hesitate to speak with a 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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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.
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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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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.