Stocks Top off Strong October
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 10/30/15. Rates and Economic Calendar Data from Bloomberg as of 11/02/15. Earnings data from FACTSET as of 10/30/15.
The S&P 500 Index posted a weekly gain of 0.2% to top off the strongest month for U.S. stock returns since October of 2011. The benchmark index is now 8.4% higher than it was at the end of the third quarter. International stocks also saw price gains during October with the MSCI EAFE Index (international developed) posting a 7.8% increase and the MSCI EM Index (emerging markets) moving 7.1% higher.
This comes as welcome news to investors who feared the slump in Chinese stocks witnessed during August and the longer term trend of declining commodity prices was pointing to a hard landing in China and/or a global economic recession. Earnings season is also providing reason to be more optimistic; Q3 earnings growth while on pace to decline 2.2% over last year is performing much better than some recent estimates suggested. As of the end of September, earnings declines were expected to be -5.2% for Q3 but with 76% of companies reporting earnings above estimates, a more positive picture is taking shape.
The Federal Open Market Committee released their October statement last Wednesday and removed the line: “Recent global economic and financial developments may restrain economic activity somewhat…” from their statement. This and the explicit mention of assessing progress to determine whether or not it will be appropriate to raise rates at the December meeting leads us to believe that the FOMC is gaining confidence in the U.S. economy and a rate hike before year end is still likely. Should the Fed raise rates at the December meeting this may provide additional confidence to market participants, remove an uncertainty and provide further impetus for higher stock prices moving into 2016.
Despite the comeback seen in U.S. large cap stocks, we at Hennion & Walsh contend that days of heightened volatility are not behind us. It is wise to review your asset allocation strategy to ensure you have the diversification in place to withstand wider relative swings in equity market prices. To request a portfolio review from Hennion & Walsh, 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.
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.