U.S. Stocks March Forward as Economic Data Remains Strong
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 08/05/16. Rates and Economic Calendar Data from Bloomberg as of 08/08/16.
The S&P 500 Index edged up half of one percentage point last week as volatility picked up slightly but remained well below historical averages. U.S. Stocks are now up 8.2% (when measured by the S&P 500 Index) and/or 8.1% (when measured by the Dow Jones Industrial Average) this year. International developed markets* lost 1.35% for the week, giving up their 2016 gain to finish the week down 0.5% for the year. On the international emerging markets* front, an advance of 1.4% for the week, aided by attractive valuations and loose monetary policy in developed countries such as the U.K., moved the MSCI EM Index to an impressive year-to-date advance of 13.6%.
A host of economic data releases showed that the U.S. economy continues to show signs of slow and stable growth. ISM Manufacturing fell to 52.6 from 53.2 but remained above 50 (the key level that signals expansion) for the fifth consecutive month. Similarly, ISM Non-Manufacturing, which measures the service sector of our economy, slipped back to 55.5 from 56.5. Garnering the lion share of investor interest however was the monthly Employment Situation, which was released last Friday. Coming in well above the consensus estimate for 185,000, the report showed 255,000 new jobs had been created in the month of July. The unemployment rate held steady at 4.9% as the participation rate ticked up to 62.8% from 62.7%. As we have discussed in the past, Americans finding quality work has been one of the central arguments provided for the Federal Reserve’s resistance to raising interest rates. This latest report could ease the path for one or more 0.25% interest rate hikes before the end of 2016.
The upbeat economic data of the past week helped growth stocks play catch-up with their more value oriented stock counterparts. For the year, the Russell 1000 Value Index has increased 9.8% while the Russell 1000 Growth Index is up 6.7%. For the third consecutive week, however, growth has outperformed value narrowing the difference between the two to 3.1%. This represents the smallest premium value has enjoyed over growth since May of this year. As a reminder, value companies typically have lower share prices relative to fundamental measures such as book value or earnings while growth companies commonly exhibit higher prices relative to these same measures. Value stocks are also known to typically offer a higher dividend yield than growth companies and in an environment of low interest rates and slow economic growth, income producing securities are often viewed attractively.
Interestingly, Friday’s close marked the 20th straight trading day the S&P 500 Index moved less than 1% to the up or down side. This low level of volatility should not be expected to continue but is providing investors with an opportunity to make changes to their portfolio without potentially mistiming the market by buying or selling at inopportune moments. To learn about how we at Hennion & Walsh are helping clients to reposition their portfolios ahead of what is shaping up to be an eventful Fall season, or to request a complimentary portfolio review, please do not hesitate to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
*International Developed markets are represented by the MSCI EAFE Index. Emerging markets are represented by the MSCI EM Index.
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.