Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 8/18/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers as of 8/18/14.
Housing and Inflation Data Lift Markets
The storm that is the ongoing geopolitical crises occurring in the Ukraine and Middle East seems to have subsided a bit and investors are now turning some of their focus to economic data. Since the beginning of August, US and International Stock markets have reversed the downtrend witnessed throughout much of July and turned in positive returns as evidenced by the S&P 500 gaining 2.6% month-to-date and the MSCI EAFE ex-US (which measures international equity markets) gaining 0.68% for the same period.
Economic data released in advance of the Fed’s conference on the economy and monetary policy in Jackson Hole, Wyoming, showed that homebuilder confidence increased more than expected and an inflation reading remained muted. The National Association of Home Builders releases a monthly index to give an indication of confidence among home builders and August’s reading came in at 55 after rising to 53 in July (a reading above 50 indicates positive sentiment.) In addition to Homebuilder confidence, housing starts also increased 15.7% during July relative to June. This has helped homebuilder stocks gain back some of their losses this year. The S&P Homebuilders Select Industry Index is up over 8% for the month, bringing the year-to-date return for this industry to -4.4%.
In other economic news, the US consumer price index showed that inflation increased only 0.1% in July and 1.9% from a year prior. This tame inflation data has led investors to believe the fed has more room to keep interest rates lower for longer until their goal of 2% inflation is achieved (it should be noted that the fed refers to the Producer Price Index as their gauge for inflation, the difference between the two is marginal and goes beyond the scope of this article but can be explored further here.)
Although some investors and media pundits are having a hard time believing the equity markets can continue to appreciate, we at SmartTrust® believe the geopolitical concerns which partially caused the weakness in July, have not had a lasting effect on market or economic fundamentals. While we believe there is always the possibility of short term pullbacks, these pullbacks can be near impossible to predict and attempting to do so can cause a severe drag on the long term performance of an investor’s portfolio.
Important Information and Disclaimers
Past Performance is not a guide to 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.