Stocks Post Solid Gains Ahead of Memorial Day Weekend
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 5/26/17. Rates and Economic Calendar Data from Bloomberg as of 5/29/17.
Stocks posted steady gains last week, heading higher in each of the 5 trading days leading up to Memorial Day Weekend. The S&P 500 Index gained 1.5% last week, one of its best weekly performances of 2017. The Russell Midcap Index gained 1.2% while the Russell 2000 Index, a barometer of small cap stocks, gained 1.1%. Internationally, developed markets experienced a minor upward swing of 0.2% and emerging markets posted an impressive 2.2% move higher. In terms of year-to-date performance, Growth continues to dominate Value in the U.S. as measured by the Russell 1000 Growth Index which is up 14.2%, versus the Russell 1000 Value Index’s 3.4% gain so far in 2017. After lagging U.S. stocks during most of the recovery, international equities have outpaced domestic stocks this year with developed markets experiencing an impressive gain of 14% and emerging markets registered an upswing of nearly 19%.
With President Trump traveling internationally and economic data somewhat light, investors appear to have embraced risk assets last week as both stocks and U.S. Treasury yields gained. In the weeks ahead, investors are likely to focus on readings of inflation and the employment report for indications about what the pace of future interest rate hikes may be on the part of the Federal Reserve. Minutes from the Federal Open Market Committee (FOMC) meeting in May were released last week and discussed two noteworthy topics; 1) the recent moderation in economic data and 2) the size of their balance sheet. As it relates to the relatively weak gross domestic product (GDP) figure released April 28, the Fed believes the slowing reflects transitory factors. In other words, the first quarter’s GDP report is not indicative of a lasting decline in the pace of U.S. economic growth. Thus, the probability for a rate hike during the next FOMC meeting (taking place between June 13 and 14) remains close to 90% according to the CME Group. Also interesting was the acknowledgement that the Fed expects that it will be appropriate to reduce their nearly $4.5 trillion balance sheet towards the end of this year. A reduction in the size of the Fed’s balance sheet could be expected to tighten financial conditions further by either increasing the supply of government debt on the market, reducing demand, or a combination of both.
Some suggest the old adage of, “Sell in May and Go Away” is the best method for investing during the summer. We believe, given the current state of the global economy, that investors would be wise to instead take advantage of the market and stay invested, though intelligently and consistent with their own risk tolerances, objectives and timeframes. This requires a constant evaluation of the opportunities and risks that may exist and an understanding of how they may impact your investment portfolio. To learn about the opportunities we see this summer, and the risks we plan to avoid, please do not hesitate to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
Finally, as Memorial Day 2017 is now behind us, a special thank you to all those who courageously gave their lives and all those who bravely fight today to protect all of our freedoms.
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.