Strong Employment Report Paves the Way for the Fed
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 3/10/17. REIT, Rates and Economic Calendar Data from Bloomberg as of 3/13/17.
Stocks broke their recent streak of weekly gains after the S&P 500 Index declined 0.4% last week. Mid and Small cap stocks also dropped as evidenced by the Russell Midcap Index losing 1.3% and the Russell 2000 Index falling 2.0%. Internationally, the MSCI EAFE Index, which is a gauge of international developed markets, offered some relief gaining 0.4% while the MSCI Emerging Market Index, which is a measure of international emerging markets, posted a loss of 0.5%.
Despite falling on the week, stocks were able to manage gains on Friday following a solid employment report. 235,000 new jobs were added during the month of February and wages grew 2.8% versus the same month last year. These numbers exceeded most estimates and have further strengthened the Federal Reserve’s case for an additional 25 Bp (i.e. 0.25%) rate hike to the Federal Funds Target Rate at their meeting this week. We believe that normalizing the interest rate environment is healthy for the U.S. economy. It is certainly encouraging to see economic growth and inflation pick up to a level that the Federal Open Market Committee (FOMC) deems appropriate for slightly higher rates. While stock prices may initially pause following the hike, better growth and rising inflation historically have been positives for equities. We still also contend that while the Federal Reserve may be on track for three interest rate hikes in 2017, they will likely continue to follow a gradual and extended path of tightening moving forward.
Volatility is still depressed and likely to move higher throughout the remainder of this year. Investors who have a well-planned strategy are more likely to weather bouts of volatility and not veer off course. If you would like to consult with our Asset Management Team and learn about the portfolio strategies that we are putting in place for clients, please do not hesitate to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.
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.