Market Overview
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 10/09/15. Rates and Economic Calendar Data from Bloomberg as of 10/12/15.
Happening Now
Stocks snapped back strongly last week with the S&P 500 Index posting a 3.3% weekly gain that moved the measure within 2.5% of positive territory for 2015 but remains down over 5% from the high set earlier this year on May 21. The rally was not limited to large cap U.S. stocks however with small cap U.S. stocks (as measured by the Russell 2000 Index) moving 4.6% to the upside, developed international market stocks (the MSCI EAFE index) gaining 5.4% and international emerging market stocks (the MSCI EM Index) advancing nearly 7%.
These gains came during a week of slow economic data where International trade, FOMC minutes and weekly jobless claims numbers where considered by Bloomberg to be the only market moving announcements. Perhaps the most influential piece of market data came the Friday before last week when the employment report painted a weaker picture across the board, topped off by no change in wages and suggesting a further potential delay in an initial Fed Rate hike. To be clear, despite the equity markets reaction, we, at SmartTrust®, continue to believe that a rate hike is not only appropriate giving the current state of the U.S. economy but also likely before year end.
At the start of each quarter, we are able to take a reprieve from focusing on central bank, macro-economic news to conduct a more fundamental analysis of corporate earnings and guidance. It appears almost forgotten at times that the price of the “market” is, after all, a composite of individual company performance and this performance is driven by revenue/earnings growth and investor expectations. Since companies are required to file financial statements quarterly, the quarterly “earnings season” offers some of the richest data available throughout each three month long period.
This season, earnings are expected to decline to 5.5% for Q3, on a year over year basis, led by the energy sector which is expected to post a decline of 64.3%. If you remove the energy sector, which makes up about 7% of the market cap of the S&P 500, earnings are expected to post a positive gain of 1.8%. In addition to the aggregate level of earnings growth being held down by the energy sector, a stronger U.S. Dollar that averaged $1.11 (per euro) over the quarter vs. an average price of $1.33 (per euro) last year is also weighing on earnings.
The performance of the stock market over the past few months can certainly be characterized by volatility, uncertainty and opportunity.
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.
Definitions
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.