Updates on North Korea, Iran, and Inflation Push Markets Higher
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 05/11/18. Rates and Economic Calendar Data from Bloomberg as of 05/15/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Last week global equity markets finally displayed some of the vigor investors grew accustomed to early in 2018, resulting in one of the best performing weeks of the year. Almost all equity indices returned substantial gains for the week, primarily on the back of a lower than expected inflation reading, the U.S. withdrawal from the 2015 Iran nuclear agreement, and news of a scheduled meeting between North Korean leader Kim Jong-Un and United States President Donald Trump.
Over the past week the S&P 500 index gained 2.49%, while the Russell Midcap gained 2.65% and the Russell 2000 Index, a measure of the Nation’s smallest publically traded firms, gained 2.65%. On the international front, developed markets added 1.60% last week while emerging markets added 2.52%. Fixed income markets took a fairly tranquil stance throughout the week, as the yield on the 10 year US Treasury settled at 2.97%, which represents a rather insignificant increase from the 2.95% mark we saw a week prior. The U.S. Dollar followed suit and declined by 0.20%.
As previously mentioned, there were a few major catalysts that propelled markets higher over the past week. However the one that was the most impactful to investors in our opinion was the lower than expected reading observed on the Consumer Price Index, Producer Price Index, and Import Price report. A combination of these three metrics is used to gauge the overall level of inflation present in the economy. The Federal Reserve has continually stated that certain key mandates must be met before they’ll comfortably increase the pace at which the federal funds target rate is increased. Inflation is one of those key mandates. In short, the lower than targeted inflation number signals that the Federal Reserve will likely maintain historically low benchmark interest rates for longer.
Although this week was largely dominated by positive headlines, continued upside surprises in corporate earnings, and a negative real Federal Funds rate (a condition when the federal funds target rate is below that of the inflation rate) supportive of potential, continued growth in equity markets, downside risks remain ever-present. With that said, portfolio diversification becomes increasingly important in times of heightened uncertainty, and we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios. 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 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.
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