Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 4/13/15; Equity Market, Fixed Income and REIT returns from JP Morgan as of 4/10/15.
Currency Volatility/Oil Prices Push and Pull U.S. Economic Growth
The S&P 500 index gained value on four of five days last week and posted its first three day win streak since February while returning 1.74% over the 5 day period. Mid and small cap U.S. stocks gained 1.02% and 0.74% respectively, and have now each returned 5.3% for the year (as measured by the S&P 400 Mid Cap and the Russell 2000 indexes). International stocks had primarily positive results last week as the Stoxx 50 Index, which measures the performance of the 50 largest stocks in the Eurozone, returned 0.3%; the FTSE 100 Index, which measures the performance the United Kingdom stock market, gained 1.8%; the Nikkei 225 Index, which measures the performance the Japanese stock market, was unchanged; and finally the MSCI EM Index, which measures the performance of Emerging Markets, gained 4.24%.
The International Monetary Fund (IMF) released their latest economic outlook on Tuesday morning and kept the global GDP growth rate unchanged at 3.5% while lowering the U.S. growth rate for 2015 from 3.6% to 3.1%. According to the IMF, this reflects the volatility in currency markets that is being fueled by expansive monetary policy and a strong dollar as well as the drop in oil prices. To view the entire IMF Outlook, please click here.
Also focused on the strong dollar and drop in oil prices, JP Morgan discussed the effects these two trends may have during their “Q2 Guide to Markets” conference call. Citing research done by their investment bank, they estimate that for every 10% increase in the U.S. Dollar, U.S. GDP will decline by 1%. However, they believe this headwind is being almost entirely offset by lower oil prices, which resulted in more money in the pockets of middle class Americans to spend in the economy.
Important Information and Disclaimers
Past Performance is not a guarantee of future performance.
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.