Volatility Continues as Stocks Register Minor Gains
Sources: Equity Market and Fixed Income returns are from JP Morgan as of 09/16/16. REIT, Rates and Economic Calendar Data from Bloomberg as of 09/19/16.
Day-to-day volatility continued last week with the S&P 500 Index gaining or losing more than 1.0% on three of five trading days. Investors had a wide variety of economic data to digest including an inflation measure, Industrial Production, and Retail Sales while also considering comments from Federal Reserve Bank Presidents and Governors in advance of this week’s much anticipated Federal Open Market Committee (FOMC) meeting. Stocks in the U.S. were able to manage minor gains amidst all of this action as the S&P 500 Index finished the week up 0.6%. Internationally, both developed and emerging markets lost value. The MSCI EAFE Index, which measures developed market stocks, fell 2.5% while the MSCI Emerging Market Index lost 2.6%. In terms of year-to-date performance, the S&P 500 Index is now up 6.3%, the MSCI EAFE Index is down 0.3% and the MSCI Emerging Market Index has gained an impressive 14% on a total return basis.
This upcoming week, traders and market participants will be focused on the September FOMC meeting. The meeting will culminate on Wednesday with the release of their prepared statement and forecasts as well as a press conference with Fed Chair Janet Yellen. While the market is not pricing in a rate hike and the probability for one remains low, it appears that economic conditions continue to warrant a small move of 0.25% higher in the Fed’s Target rate. Should the FOMC leave the target rate alone, the projections for the future path of rate increases and the forward guidance offered in Janet Yellen’s press conference will be heavily analyzed for clues about whether or not we can expect a rate hike at all in 2016.
We continue to believe that a rate hike is warranted and that the economy can not only withstand one, but perhaps could benefit from one. Providing business leaders with clarity should serve to increase confidence and spur capital spending. Increasing the Fed Funds Target Rate also gives the Fed some room to cut rates if deemed necessary should economic conditions deteriorate significantly ahead.
Investors today need to have a portfolio that can withstand shocks related to a surprise hike or continued uncertainty as to when the Fed ultimately decides to move. Balancing the desire to attempt and achieve good short term results while staying focused on long term objectives, like retirement planning, can be difficult to do and often leads investors astray. For this reason, we suggest having a financial plan completed to define appropriate goals and to help resist the temptation to overly focus on short term gains or losses. To work with Hennion & Walsh on completing a financial plan, or to have a comprehensive portfolio review completed, please do not hesitate to speak with your 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.