Trump Trade Momentum Pauses despite Positive Economic Data
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 1/20/16. REIT, Rates and Economic Calendar Data from Bloomberg as of 1/23/16.
Stocks finished lower last week both in the U.S. and Internationally. The S&P 500 Index fell 0.1% while the Russell Midcap Index lost 0.2% and the Russell 2000 Index dropped 1.5%. Despite the marginal loss seen in U.S. Large Caps, nine of eleven sectors actually managed to finish the week flat or in positive territory. The only sectors to experience losses were Healthcare and Financials. International developed markets, as measured by the MSCI EAFE Index slid 0.5% while the MSCI Emerging Market Index lost 0.3%. Interestingly, Emerging Market stocks, as represented by the MSCI Emerging Market Index, have increased by 3.6% thus far in 2017 without any significant media attention.
Economic data reports were mostly positive during the week as evidenced by U.S. industrial production registering an increase of 0.8%. This represented the largest monthly increase in two years. A popular measure of inflation, the Consumer Price Index (CPI) rose 0.3% in December, leading to the fastest pace of increases in 2016 overall in that last 5 years. These increases could further help build the case for additional rate hikes by the Federal Reserve in 2017. Moderate inflation, while raising costs for consumers, is viewed by economists as a positive for near term economic growth. This view is partly because inflation can serve as an impetus for consumers to make purchases today, rather than put off buying a certain good and risking higher a cost in the future. Finally, housing starts and permits were mixed last month. Housing starts did rise by 11.3% in December but this was due entirely to multi-unit properties rising 57% while single family starts posted a 4% decline. Permits for new home construction fell 0.2% in December, also due to mixed results from single family properties which gained 4.7% versus multi-unit properties which lost -9.0%.
President Donald Trump was officially sworn into office on Friday and presented a somewhat dystopian picture of the United States in his inaugural address. While we at Hennion & Walsh would actually contend that the U.S. economy is relatively strong, we do agree that a number of the policies outlined by President Trump should help support additional growth in the near term. Less regulation, lower corporate taxes, and increased infrastructure spending should not only benefit the U.S. economy and stock market as a whole but also could provide for investment opportunities in certain sectors and asset classes. To learn more about how we at Hennion & Walsh are helping clients invest in this environment, please do not hesitate to speak with your Hennion & Walsh Financial Advisor.
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.