Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morngan as of 01/18/19. Rates and Economic Calendar Data from Bloomberg as of 01/22/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets continued their ascent, as nearly every notable index produced positive returns last week. In the U.S., the S&P 500 Index pushed ahead to a level of 2671, representing a sizable gain of 2.90%, while the Russell Midcap Index gained 3.05% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 2.44%. On the international equities front, developed markets moved 1.08% higher, while emerging markets gained 1.69%. Finally, the 10 year U.S. Treasury yield continued their own rise from 2018 lows, settling at 2.79%.
On January 11th the International Monetary Fund (IMF), an organization comprised of 189 separate nations with a stated purpose of working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world, released updated economic projections (available at IMF.org). These projections lowered global economic growth in 2019 from 3.7% to 3.5%, and in 2020 from 3.7% to 3.6%, citing concerns in Europe and Asia as the primary detractors. While the magnitude of the forecast changes made sound minor, they should nonetheless not be disregarded. Put into context, the concerns stemming from Europe revolve around the United Kingdom and the European Union’s ability to negotiate reasonable Brexit terms without pulling down the entire European economy, while trepidation in the Asian market largely relate to the United States and China’s willingness to come to terms regarding trade tensions.
Following the release of the IMF’s updated economic forecast, the MSCI World Index, a composite representing all of the worlds publicly traded stocks, subsequently rose 2.25% on the week. So, what’s leading to the prominent divergence in opinions between economists and investors, and who’s right? In our view, these two views aren’t mutually exclusive. In other words, a tempered growth forecast doesn’t necessarily spell trouble for global equity markets. The IMF lowered their projections for global economic growth, citing tangible risks that we’ve wrote about at length in previous posts. In fact, we’ve recognized that the two risks previously mentioned had the power to hamper growth forecasts, but we also recognize that global growth over 3% provides for a relatively solid economic foundation which can be constructive for future stock market growth.
A reduction in growth expectations, for the reasons cited by the IMF, is warranted, but it doesn’t mean that stock investors should necessarily abandon equities altogether. We’re hopeful that the ultimate end to trade tensions and Brexit negotiations is in sight, but there will undoubtedly be bouts of volatility in the interim. During such times, proper portfolio diversification can be critical. 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.