Stocks Reach All-Time Highs…Again

Market Overview


Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 7/21/17. Rates and Economic Calendar Data from Bloomberg as of 7/24/17. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology. S&P 500 earnings data from Factset as of 7/21/17.

Happening Now

Stocks and bonds both rose in price last week reaching fresh all-time highs as earnings releases surprised to the upside and the European Central Bank (ECB) issued dovish guidance. Domestically, the S&P 500 Index gained 0.6% while the Russell Midcap and Russell 2000 Indexes each advanced 0.5%. On the international front, Developed Markets moved 0.5% higher while Emerging Markets led the way with a 1.4% gain. All the while, the yield on the 10 Year U.S. Treasury fell to 2.24% and the U.S. Dollar fell in value against a basket of its currency peers.

Earnings growth helped drive the U.S. market to new all-time highs last week. Thus far, 96 S&P 500 companies have issued second quarter results and about 73% of them have beaten profit estimates while 77% have beaten sales estimates. The Energy, Technology and Financial sectors have posted the strongest results of the 11 GICS sectors so far, benefiting from a variety of factors such as higher oil prices relative to last year, global economic growth, and marginally higher interest rates.

Last week’s ECB meeting culminated with ECB President Mario Draghi’s official statement stressing that a gradual path would be taken with regards to future monetary policy tightening. Following these dovish comments, however, Draghi discussed his expectations for inflation to move higher in the coming months and also said the council would discuss the current pace of asset purchases during their September meeting. The markets took the combination of Draghi’s inflation outlook and taper comments as a more hawkish message- the Euro quickly appreciated against the U.S. Dollar while European sovereign bond yields rose.

Markets will forever remain vulnerable to monetary policy activity but we believe an important distinction needs to be made between actual changes in borrowing costs and investor speculation. For example, in 2013 the Federal Reserve (Fed) announced they would begin tapering their bond purchases. Almost immediately, yields shot up, the U.S. Dollar strengthened, and equity markets fell. This reaction was due to investor speculation that monetary policy was on a one direction path of tightening. Nearly four years later, U.S. Treasury yields have come back down, the U.S. Dollar has softened, and equity markets continue to make all-time highs. While the Fed has increased the Fed Funds Target Rate several times since 2013, they have not discouraged borrowing and the economy continues to grow. In our view, far more lasting than price changes due to investor speculation are price changes due to fundamentals. Eventually, when rates rise to a point that consumers are discouraged from taking loans and making purchases, more substantial economic shifts may then be underway. Right now, however, we are being treated to stable economic growth and low inflation, a goldilocks type environment that should continue to support low volatility overall and higher stock prices.

Important Information and Disclaimers

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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.