Taking a Look Back at the First Half of 2018
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 06/29/18. Rates and Economic Calendar Data from Bloomberg as of 07/02/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets fell for the second consecutive week in the face of continued trade tensions and a stronger U.S. dollar. Looking at a representative sample, the S&P 500 Index declined 1.31%, the Dow Jones Industrial Average lost 1.26%, and the MSCI EAFE Index, a gauge for international developed markets, dropped 1.03%. Now that we’re halfway through 2018, let’s take a quick look at the U.S. equity markets through a slightly wider lens.
For the year, the S&P 500 Index, widely regarded as the benchmark for the U.S. equity markets overall, is up 2.65% through the first two quarters. Strong company fundamentals and an overall encouraging economic backdrop have been going head to head with geopolitical issues, trade concerns, and the overall state of uncertainty. At this time, the former is in the lead; however, we feel the potential upside has been restrained due to the latter. Digging a little bit deeper, there are a few key takeaways from the best performing market segments thus far, the Russell 2000 Index and the NASDAQ. The Russell 2000 Index primarily represents small cap stocks and is up 7.66% year-to-date (YTD), and 7.5% in the 2nd quarter alone. As mentioned in last week’s update, small cap companies derive the majority of their revenues domestically, and have proven to be less sensitive to the trade and tariff risks. This can serve as a reminder of the importance of a well-diversified investment portfolio as different asset classes, sectors, and market segments may react very differently to various market events.
Bringing our focus over to growth through innovation and technology, the tech heavy NASDAQ Index has gained 9.37% so far in 2018. In terms of some of its well-known constituents, Amazon.com, Inc. (AMZN) has returned over 45%, Apple, Inc. (AAPL) is up over 10%, and Netflix, Inc. (NFLX) has risen by a staggering 103% thus far in 2018. These companies represent a very small sample of what we are excited about in regards to potential future economic growth. Innovation continues to move society forward and, historically, those that have thrived were either the innovators or those that recognized the potential and positioned themselves best to profit from the innovation. While all sectors are typically involved, technology typically finds itself at the forefront of innovation.
Moving forward into this week, we expect continued volatility across the board in the holiday shortened trading session. We’ve already experienced this on Monday as the major averages erased early losses. Economic data reports are heavy this week with jobs reports, payrolls, unemployment, and Federal Reserve meeting minutes. Expect volume to be low and market swings to be potentially exaggerated due to new announcements from the White House or data releases that prove significantly different from projections. As a result, investors will likely continue to benefit from an investment strategy that is well-diversified and, as always, takes their specific objectives, timeframe and risk tolerance into consideration.
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.
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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.
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 REITs that primarily own and operate income-producing real estate.