U.S. Stock Market Welcomes Outcomes of Midterm Elections and Fed Meeting
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 11/09/18. Rates and Economic Calendar Data from Bloomberg as of 11/12/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
There are few things that will restrain an upward trending stock market more so than uncertainty, and this past week the U.S. equities market were pleased to see one of those uncertainties removed, partially alleviating some ambiguity. Global capital markets collectively breathed a sigh of relief following U.S. midterm elections as the S&P 500 Index surged 2.21% higher, settling at a level of 2781, while the Russell Midcap Index gained 1.26% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, lagged its larger counterparts, only increasing 0.12%. On the international equities front, developed markets returned 0.23%, while emerging market equities lost 2.04%. Finally, the 10 year U.S. Treasury yield subsided to a level of 3.19%.
Two headwinds facing investors last week were U.S. midterm elections and the Federal Reserve’s then pending decision to maintain or increase the Federal Funds Target Rate. Fortunately, both concerns were assuaged as U.S. midterm elections and Federal Reserve interest rate policy produced results in line with what most pundits had forecast. On the election front, the U.S. electorate voted in favor of the Democrats gaining control of the House of Representatives and the Republicans retaining control of the Senate. Moreover, the Federal Reserve chose to leave the overnight lending rate unchanged, setting investors up for what will likely be one final 25 basis point (i.e. 0.25%) increase for the year in December.
Although the two aforementioned uncertainties have dissipated, additional headwinds still exist including, but not limited to, ongoing trade and tariff negotiations and potential Federal Reserve activity in 2019. As a result, investors should anticipate additional short term bouts of volatility ahead. While it may be impossible for investors to avoid risk entirely, investors can help protect themselves from the unexpected by building a diversified portfolio consistent with their longer term financial plan. In this regard, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios and update (or complete) their financial plans as appropriate. If you would like to learn more about how we are helping clients invest dynamically and consistently with their own goals, timeframe and tolerance for risk, please do not hesitate to speak with your Hennion & Walsh Financial Adviser.
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.
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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.
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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.