U.S. Stocks Rally Following Strong Jobs Report while Geopolitical Concerns Linger06-05-2018 |
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 06/01/18. Rates and Economic Calendar Data from Bloomberg as of 06/05/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets delivered mixed results in last week’s holiday shortened trading session. In the U.S., the Dow Jones Industrial Average retreated 0.38% while the wider ranging S&P 500 Index gained 0.54%. Internationally, developed and emerging markets posted negative returns of 0.97% and 0.51% respectively as measured by the MSCI EAFE and MSCI EM Indexes. In fixed income, the 10 year U.S. Treasury yields were little changed for the week, closing at 2.89%. It’s worth noting that the Federal Reserve now enters the “quiet period” ahead of next week’s scheduled FOMC meeting on June 12-13, where a 25 Bp hike to the Federal Funds Target Rate seems likely. This would mark the second rate increase of 2018. However, following recent geopolitical events, markets are now pricing in just a 24% chance the Fed raises rates four times in 2018, according to CME Group data. This is down from more than 50% as recently as last week.
Looking back over the course of the prior week, we saw equity market trading revolving again around the topics of politics and trade. Global stocks were sent lower over the weekend due to a “constitutional crisis” in Italy. The Eurozone’s 3rd largest economy experienced significant stock and bond market volatility due to political uncertainty and the potential for another country (with the prior one being Great Britain) to leave the Eurozone.
Volatility spilled over into the U.S. with an apparent flight to safety as investors bought bonds and sold stocks. However, as we’ve seen many times this year, the seemingly resilient equities market experienced a rebound following the declines. Stocks continued to fluctuate mid-week as we received updates out of the White House regarding tariffs for Canada, Mexico, and the EU. U.S. markets rallied to close out the week following the release of a strong U.S. jobs report on Friday. As mentioned earlier, the S&P 500 finished positive for the week and we’re predominately seeing continued momentum to start the new week. The Consumer Discretionary, Consumer Staples, and Technology sectors were leading the way out of the gates on Monday.
The strong jobs report can serve as another reminder that the underlying economic foundation in the U.S. remains relatively strong at this point. However, more short term bouts of volatility can be expected ahead given all of the geopolitical uncertainties that currently exist. As a result, we encourage investors to revisit their portfolios to help ensure that they have the diversification in place to help withstand future bouts of volatility while also being positioned in accordance with their own specific goals and investment timeframe.
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.