U.S. Stock Market Performance and the Link to Oil
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 01/21/16. Rates and Economic Calendar Data from Bloomberg as of 01/25/16.
Stock markets around the world posted their first weekly gain of 2016 last week, despite continued day-to-day volatility. The S&P 500 Index concluded the week with a daily gain of over two percent during Friday’s trading session allowing the benchmark to finish the week with a 4 day gain of 1.4%. International developed and emerging markets also saw marginal price gains of 0.2% each (in U.S. Dollar terms) during the week.
U.S. Stocks have been trading in sympathy with the price of oil recently, a relationship that historically has exhibited very low correlation. While stocks and oil both generally fall together during times of economic duress, the fact that cheaper oil puts more money into consumers’ pockets often bodes well for the stock market. In fact, according to a recent Wall Street Journal Article, the correlation of daily stock returns to changes in the price Brent Crude during the month of January was 0.97 the highest it has been in 26 years! Hence, we continue to monitor when the performance of the stock market will decouple from oil prices.
To put the noise around the drop in oil prices into context, consider that the energy sector only makes up around 7% of the U.S. stock market and that despite the resulting job losses in this industry, the U.S. unemployment rate has fallen to 5% – the lowest level since before the most recent financial crisis began. We continue to believe that while 2016 will be a year likely remembered for its volatility, opportunities still exist and will continue to present themselves for investors who take a balanced approach to investing. If you would like to learn more about how your portfolio is weighted across asset classes and sectors, please do not hesitate to contact your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
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.