U.S. Economic Growth Reached 4.1% for the 2nd Quarter07-31-2018 |
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 07/27/18. Rates and Economic Calendar Data from Bloomberg as of 07/30/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Stocks advanced again last week. In the U.S., the S&P 500 index and the Dow Jones Industrial Average were up 0.61% and 1.57% respectively. Overseas, the MSCI EAFE index gained 1.35% for the week. Keeping an eye on interest rates, the yield on 10 year U.S. Treasuries remained below 3%, settling in the 2.96% range.
Stocks continue to benefit from positive earnings reports. As of Friday’s close of business, 87% of companies that have reported have exceeded expectations for the second quarter – well above the five-year average of 70% according to FactSet. In addition to generally positive earnings reports, stocks were lifted by signs of easing trade tensions between the U.S. and the European Union. Although we contend that trade will remain a risk to continued stock market growth over the shorter term, particularly between the U.S. and China, easing trade pressures should benefit equity markets.
The biggest economic data release last week was second quarter gross domestic product (GDP). Following a first quarter revised reading of 2.2%, Q2 came in at an impressive 4.1% annualized rate. This marks the biggest increase since 2014. We note that personal consumption of goods and services had large positive contributions in the quarter. Strong consumer spending is important for a growing economy, given their significant impact on GDP calculations, and these results mark a solid increase compared to the Q1 numbers.
This week will feature a full slate of economic data releases that we will continue to monitor. As reported Tuesday morning, June personal income and consumer spending readings were both up and annual core inflation came in at 1.9%. The Federal Reserve is also meeting this week, although we’re not expecting any substantial news to come out of this particular meeting. As this current bull market continues, investors would be wise to understand the risks they are currently taking within their portfolio strategies and try to balance those risks as best as possible within a well-diversified portfolio that is consistent with their objectives, timeframe and tolerance for risk.
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 REITs that primarily own and operate income-producing real estate.