Market Commentaries

  • U.S. Stocks Drop on Trade War Rhetoric


    Market Overview

    good times

    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 03/23/18. Rates and Economic Calendar Data from Bloomberg as of 03/26/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

    Happening Now                   

    U.S. stocks experienced their worst weekly performance since January 2016 as fears over a trade war gripped markets. The S&P 500 Index lost 5.9%, the Russell Midcap index lost 4.9%, and the Russell 2000 index, a gauge of the Nation’s smallest publicly traded companies, lost 4.8%. On the international front, developed markets declined by 2.6% while emerging markets declined 3.4%. Turning to fixed income, the yield on the 10 year U.S. Treasury declined 3 basis points to 2.82% from 2.85% the week prior.

    Entering last week, all eyes were on the Federal Reserve’s Wednesday rate hike announcement and accompanying press conference. In Jerome Powell’s first press conference as Chair, he announced an increase of the Fed Funds Target Rate by 0.25% to a range of 1.50% – 1.75%, an increase to forecasts for 2019 GDP growth, and an increase to the number of potential rate hikes next year from two to three. A smaller majority of participants continue to anticipate three hikes in 2018 as some now believe that four hikes may be appropriate. Overall the announcement and forecasts were in-line with consensus but carried a hawkish overtone, certainly nothing to justify the mass selling that took place on Thursday and Friday.

    On Thursday, President Trump announced planned tariffs on approximately $50B worth of Chinese imports. A sharp risk-off tone took hold of markets and the Dow Jones ended the day down 2.9%, or as the media prefers OVER 724 POINTS! Selling pressure continued on Friday with additional declines of about 2% on the major averages. As we have written about several times this year, we expect market risk to increase this year as averages grind higher. Remember, while the term volatility is often associated with negative returns, volatility is not necessarily a one way ticket. Fortunately, Monday’s trading this week showed markets can experience large moves to the upside. The Dow Jones Industrial Average and the S&P 500 index both bounced back with gains of over 2% as investors looked through the headlines to the strong fundamentals that exist in this economic environment.

    Given last week’s decline, stocks can now claim attractive valuations in additional to the strong macro-economic backdrop of global growth, low unemployment, and favorable financial conditions. This year is sure to test investors’ risk tolerance as precipitous market swings are likely to continue with traders increasingly focused on headlines. Longer term investors will likely continue to benefit from an investment strategy that is well-diversified, takes their objectives and risk tolerance into consideration, and focuses on market fundamentals. If you would like to have your portfolio reviewed or a more comprehensive financial planning exercise completed, please do not hesitate to speak with your Hennion & Walsh Financial Advisor.

    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.

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