Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 07/06/18. Rates and Economic Calendar Data from Bloomberg as of 07/09/18. 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 equity markets came roaring back after, what felt like, months of sideways returns and they did so in the face of lingering trade tensions and on the back of an increase in the unemployment rate. Before we dive into the counter-intuitive rational behind a higher unemployment rate signifying good news, an update on global markets. The S&P 500 Index rallied to a level of 2,760, representing an increase of 1.56%, while the Russell Mid-cap Index gained 1.76%. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, exhibited some of the most impressive performance returning 3.12% for the week. On the international equities front, developed markets pushed 0.57% higher last week while emerging markets continued to give up ground losing 0.71%. Finally, the 10 year U.S. Treasury yield declined modestly and settled at 2.82%, while the U.S. Dollar followed suit falling 0.53%.
Over the past week capital markets were graced with a positive catalyst in the form of a monthly unemployment reading. The jobs figure showed that the unemployment rate increased from 3.8%, which was the lowest level seen in 18 years, to 4.0%. For a majority of investors this figure, at a glance, would appear to represent a negative reading, but markets felt otherwise and embraced the underlying factors that pushed the rate higher. Namely, the labor force participation rate.
Throughout much of this recovery pundits have argued that a steadily declining unemployment rate was slightly misleading as it relates to the health of the economy and labor force, because it was, in part, boosted by a labor force participation rate that was also on a downward trajectory. In other words, yes, the economy was producing more jobs, but it was doing so for a dwindling set of workers. Technically the unemployment rate decreases if laborers exit the job market entirely (i.e. early retirement due to a lack of opportunity) and the number of jobs produced remains constant. Fortunately, the recent tick up in the unemployment rate was caused by a surge in the number of unemployed individuals actively seeking work from a level of 6.065 million in May to 6.564 million in June, coupled with a stronger-than-expected new jobs report.
Although the employment situation continues to echo strength in the underlying economy (as does the expected strength of 2nd quarter corporate earnings reports), downside risks and economic uncertainties still remain. With that said, portfolio diversification becomes increasingly important during times of heightened uncertainty, and 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.