The Fed Turns Dovish
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 03/18/16. Rates and Economic Calendar Data from Bloomberg as of 03/21/16.
After tumbling the first two months of the year, U.S. stocks* posted their fifth consecutive weekly gain and have found themselves in positive territory for the first time in 2016. The S&P 500 Index has now gained 6.21% during the month of March after falling nearly 4.96% in January and another 0.13% in February. This benchmark index is now up 0.80% for the year. International stocks also continue to post gains with Emerging Market stocks*gaining 3.28% last week and Developed Market stocks* moving 1.02% higher. Emerging Markets continue to be the strongest performing segment of global equity markets in 2016, up 4.4% this year, ahead of International Developed Markets*, which are currently down 2.68% for the year.
The recent positive momentum in stocks is spurred, in our view, partly from the recent actions of Central Banks in addition to the continued stability of U.S. and Global economic data. As was documented in last week’s Stock Market Update, the European Central Bank (ECB) unleashed a wave of measures aimed to keep monetary policy loose. This past week the Federal Reserve joined in with their own dovish tone, keeping the Target Fed Funds Rate between 0.25% – 0.50% and lowering their forecast for additional rate hikes this year from four to two. Citing recent global economic and financial concerns, which played a role in the market volatility of the past few months, Chair Yellen assured markets that the Fed would be patient about the pace of future rate increases, absent further increases in inflation.
Despite the strong performance stocks exhibited in March, investors must be cautious heading into the end of the first quarter. Earnings season is waiting at the beginning of April and consensus estimates are for a contraction of 8.4% in Q1 earnings relative to a year ago**. This could be a catalyst for downside movements in certain stock prices, and investors overly concentrated in specific companies or sectors could be putting their capital at risk. While we believe U.S. stocks will ultimately post positive, lower single digit gains overall in 2016, volatility is likely to remain and adjusting your long term asset allocation based off of recent market performance could hurt your ability to achieve the financial goals you have set. To get help identifying the risks you are exposed to, or to better understand the likelihood of reaching your investing objectives, please speak with your Hennion & Walsh Financial Advisor or member of the Hennion & Walsh Asset Management Team.
*U.S. Stocks are represented here by the S&P 500 Index. Emerging Market Stocks are represented by the MSCI EM Index. Developed Market Stocks/International Developed Markets are represented by the MSCI EAFE Index.
**Data from Factset as of 3/18/2016
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.