U.S. Stocks Finish January on a High Note but Volatility Reigns Supreme
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 01/29/16. Rates and Economic Calendar Data from Bloomberg as of 02/01/16.
While the volatility of January 2016 will not soon be forgotten, the prospects for it being the worst start to a new year on record, which once seemed likely, did not come to fruition. Thanks to two consecutive weekly gains, the S&P 500 Index ended January “only” down 4.96%, just ahead of 2008’s 5.1% drop. Telecommunication services finished the month as the best performing sector, moving 6.8% higher on the back of strong earnings growth. Materials, conversely, fell 10.6% in January weighed down by falling commodity prices and weaker than expected Q4 sales figures.
The upside trend in equity markets witnessed over the past two weeks has not been without volatility. Consider the S&P 500 Index traded gains and losses of over 1% on four of the five trading days last week, finally posting a gain of nearly 2.5% on Friday following the surprise announcement from the Bank of Japan that they would be implementing a policy of negative interest rates to help spur investment and stimulate the economy. While the U.S. Federal Reserve is expected to continue to tighten monetary policy, international central banks will likely continue to take unprecedented steps to stimulate their local economies and markets. The question becomes will additional asset purchases and/or negative interest rates start to have a diminishing effect on market stability and economic output? We believe the answer is yes… eventually. In the meantime, identifying markets that have improving economic growth and attractive valuations should bode well for intermediate to long term investors. As a result, asset allocation will still remain critical to helping ensure that you have the necessary balance capable of providing downside protection when needed.
Understanding the underlying holdings of your mutual funds, exchange-traded funds (ETFs), unit investment trusts (UITs) and other investment products is key in order to identify the exposure your portfolio has to the many risk factors that exist in today’s marketplace. To have a comprehensive portfolio report prepared for all of your investment accounts, please do not hesitate to speak with a 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.