Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 09/13/19. Rates and Economic Calendar Data from Bloomberg as of 09/13/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Stocks continued to climb higher posting their third consecutive weekly gain. In the U.S., the S&P 500 Index advanced to a level of 3007, representing a gain of 1.02%, while the Russell Midcap Index increased 1.08% last week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, outpaced it’s larger counterparts pushing forward 4.90%. Despite the strong showing, small-cap stocks are still slightly lagging year-to-date. On the international equities front, developed and emerging markets also gained momentum moving higher 1.99% and 1.91% respectively. Finally, the 10-year U.S. Treasury yield closed out the week at 1.90%, 35 basis points higher than the previous week’s close. Improved risk sentiment, and possibly anticipation of what the Federal Reserve may do (or not do) this week regarding interest rates, led to large outflows from fixed income mutual funds and ETFs sending prices lower and yields higher.
Amid the sell-off in bonds, we find a yield curve that is no longer inverted between the 2 year and 10 year U.S. Treasuries – the often quoted recession predictor relationship. In fact, as of Monday morning, there is roughly an 11 basis point spread between the 2 and 10 year U.S. Treasuries with the 30 year yielding over 2.3%. We believe that these moves may have been due to a realization that the Federal Reserve will likely not be cutting rates by 50 basis points later this week after the FOMC meeting. In addition, we contend that a 25 basis point cut is unnecessary due to the relative strength of the “slowing but growing” U.S. economy. We’ll have to wait and see what happens at the FOMC meeting later this week and how investors react to any action and/or rhetoric.
In other news, we wanted to touch on the attack this weekend on a Saudi Arabian oil facility which sent oil prices sharply higher. This oil facility supplies roughly 5% of global oil and while it may take some time for this particular facility to come back online, we believe there are enough alternative sources of supply across the globe (particularly in the U.S.) to help limit any sustained surge in oil prices.
It’s fair to say that the days of elevated market volatility are not behind us, and we continue to encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame and tolerance for risk.
Important Information and Disclaimers
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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.