Sources: Equity Market and Fixed Income returns are from JP Morgan as of 07/07/17. Rates and Economic Calendar Data from Bloomberg as of 07/10/17.
U.S. stocks started off the second half of 2017 mixed last week while International Markets took a step backward. During the holiday shortened week, the Large Cap-oriented S&P 500 and the Small Cap-oriented Russell 2000 Indices gained 0.1% each, while the Russell Midcap Index fell 0.2%. In terms of stylized performance, Growth stocks which are home to most Technology, Consumer Discretionary, and Healthcare firms, continue to outperform Value stocks across market capitalizations. Internationally, Developed Markets slipped 0.5% and Emerging Markets declined by 0.6% for the week.
With the first half of 2017 wrapped-up, we thought it would be appropriate to review the performance of major asset classes so far this year. As a reminder, 2017 started off with animal spirits roaring. The incoming administration’s pro-growth agenda, in addition to economic data surprising to the upside, sent stocks higher and weighed on bonds. Investors had some concerns about European elections and the potential for a continuation of the populist theme that dominated geopolitics in 2016. However, those concerns proved to be unfounded as mainstream candidates won in both the Netherlands and France. In the months since, economic data (notably inflation) has disappointed, yields have come down, and stock market activity has been relatively quiet.
As of June 30th, Emerging Markets were the best performing asset class with a 19% year-to-date gain. As discussed above, Growth stocks, and their associated sectors, also provided outstanding performance during the first half of 2017. The Technology sector posted a 17% year-to-date gain, Healthcare stocks gained 16%, and the Russell 1000 Growth Index was 14% higher. International Developed Market stocks were up about 11% as of the end of the second quarter despite posting only mild gains during June, thanks to concerns about a more hawkish sentiment from the European Central Bank (ECB).
Gains were abundant for most assets during the first half of 2017. However, losses were rather significant in Oil, Energy stocks, and the Telecommunications sector. WTI Crude Oil ending trading at $46.02 a barrel on June 30th, 14% lower than the $53.75 a barrel it cost on December 31, 2016. Energy stocks sold off alongside Oil, dropping 13% during the first half of the year while Telecommunications stocks, despite offering the highest yield of any GICS sector, fell 11%.
The record low levels of volatility persisted throughout much of the first half of 2017 but that does not mean investors should get use to this unusually docile trading environment. Fortunately, investors who aim to reduce future volatility through diversification do not necessarily have to sacrifice upside potential. Given the performance of most asset classes in 2017, diversified investors may not only enjoy some degree of downside protection but may also outperform investors concentrated in Blue Chip/Large Cap U.S. stocks.
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 REITSs that primarily own and operate income-producing real estate.