Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 5/11/15; Equity Market, Fixed Income and REIT returns from JP Morgan as of 5/08/15.
Stocks Gain on the Margin but Uncertainties Persist
In the U.S. and abroad, stocks finished the week slightly higher following a “nice” jobs report on Friday. We say a “nice” report because the 223,000 jobs added were encouraging from an economic standpoint, but not so robust as to suggest an earlier or perhaps faster pace of monetary tightening. The official unemployment rate (U3) ticked down to 5.4% due in part to these new hires. The alternative U6 measure, which includes marginally attached and part-time employed individuals, also ticked down slightly to 10.8% and is now down a full 100bps since April of 2014. To read the full report, please click here.
In advance of this release, Janet Yellen, speaking with IMF Director Christine Lagarde, expressed concern that valuations in equities are “generally quite high.” While stock valuations are outside the Federal Reserve official mandate, this is not Yellen’s first time expressing concern in this regard. You may remember that in July of 2014, during her testimony before Congress, Yellen singled out Biotech and Social Media companies as having flown too high, too fast. Since that testimony, the NASDAQ Biotech Index has returned a cumulative 39.8% while the Global X Social Media Index has returned 5.9%*. Market participants, perhaps recognizing that the Fed Chair’s view of the stock market has more to say about her willingness to raise rates than it does about stock prices themselves, pushed the S&P 500 Index, S&P Mid Cap 400 Index, and Russell 2000 Index higher during Thursday and Friday’s trading.
Over the past two weeks, economic data has had the heads of most investors spinning. Following the disappointing Q1 GDP release, Consumer Spending, Consumer Confidence, Factory Orders and ISM Non-Manufacturing all posted positive results, in-line, if not better, than expectations. On the other hand, ISM Manufacturing, Nonfarm Productivity and Motor Vehicle Sales came in weaker than expected. Understanding leading and lagging indicators, as well as where we are in the economic cycle, is necessary to help make sense of all of this seemingly conflicting data. We at SmartTrust® offer a wide variety of diversified income and total return oriented strategies to help Advisors find solutions for their clients in all market environments. If you would like to learn more about our approach or if you would like to discuss how you are currently invested, please call our Internal Support Desk.
*Returns data from 7/15/14 – 5/11/15.
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.