Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morngan as of 09/28/18. Rates and Economic Calendar Data from Bloomberg as of 10/02/18. 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 capital markets were mixed on the last week of the 3rd quarter. Equity markets struggled to find solid footing while fixed income markets put forth moderately positive performance, following a highly anticipated Federal Funds Rate increase by the Federal Reserve. In the U.S., the S&P 500 Index retreated 0.51%, settling at a level of 2914, while the Russell Midcap Index lost 1.01% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publically traded firms, followed the lead of its larger counterparts, dropping 0.86%. On the international equities front, developed markets lagged emerging markets falling by 0.88% and 0.26% respectively. Finally, the 10 year U.S. Treasury yield settled at a level of 3.05%, sustaining above the 3% ceiling that had been breached in early September.
The 3rd quarter of 2018 has officially come to an end, and if your portfolio was heavily allocated toward U.S. equities you’ll hope for a repeat in the 4th quarter. U.S. equities sped past all other asset classes outperforming by a steep margin, as U.S. Large Cap and U.S. Small Cap stocks soared 7.7% and 3.6% higher; Global High Yield Fixed Income, an asset class that historically performs well when interest rates rise, displayed the next best performance striding 2.0% higher. Despite constant headlines related to trade negotiations, and corresponding tariffs, investors appeared to collectively concentrate on record setting corporate profits and robust economic growth. Of course, investors also rejoiced news that the U.S. and Canada had finally come to an agreement regarding trade terms.
Even emerging markets, an area riddled with country specific issues, experienced a moderately better quarter than the quarter before. While tariff negotiations continued to weigh on emerging markets as a whole, two nations that had been – and continue to be—a major source of concern took steps to remedy the problem. Turkey and Argentina both suffer from dangerously high borrowing costs, as the yield on each nation’s sovereign debt recently reached levels in excess of 20%; a problem that only compounded as each respective country saw their nation’s currency decline, leading to precariously high inflation levels. Fortunately both nations took steps to increase the overnight lending rate, an action that should depress inflation readings to a more controllable level.
As an expected end to a strong quarter, investors saw Federal Reserve Chairman Jerome Powell increase the federal funds rate by 25bps, which marks the third increase for 2018. As interest rates move higher, and a decade long equity bull market continues to age, attractive investment opportunities within fixed income and equity markets will become increasingly difficult to identify. It’s during such times that a balanced and diversified portfolio can be paramount. As a result, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios.
Important Information and Disclaimers
Disclosures: Hennion & Walsh is the sponsor of SmartTrust® Unit Investment Trusts (UITs). For more information on SmartTrust® UITs, please visit www.smarttrustuit.com. The overview above is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any SmartTrust® UITs. Investors should consider the Trust’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information relevant to an investment in the Trust and investors should read the prospectus carefully before they invest.
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.