Market Overview
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 5/22/15. Rates and Economic Calendar Data from Bloomberg as of 5/26/15.
Happening Now
Yellen Reiterates Stance Ahead of Holiday Weekend
U.S. Markets posted another week of modest, yet positive, returns as traders waited for a speech Friday from Fed Chair Janet Yellen. Speaking at the Providence Chamber of Commerce, the Fed Chair stayed consistent with her message of anticipating an initial rate hike this year while ensuring the markets that the pace of subsequent hikes would be both gradual and data dependent. Specifically, Yellen offered the following perspective, “If conditions develop as my colleagues and I expect, then the FOMC’s objectives of maximum employment and price stability would best be achieved by proceeding cautiously, which I expect would mean that it will be several years before the federal funds rate would be back to its normal, longer-run level (full speech here).” A normal, longer run Fed Funds Rate, according to the latest FOMC projections which were released in March, suggest a range somewhere between 3.5% and 4.0%.
To reiterate, Yellen’s speech on Friday was very much consistent with her previous comments regarding her assessment of the economy and future interest rate hikes. So, while we believe that monetary policy headlines will continue to influence market performance over the short term, the reality is that the U.S. is in a low interest rate, low growth environment that appears to be sticking around for the foreseeable future. Unfortunately, far too many individuals read into these headlines and make short term decisions while attempting to achieve a longer term goal. Rather than “collect” securities based on the latest headlines, investors should make their strategic portfolio decisions based on their understanding of the environment they are likely to face over the intermediate to long term time horizon.
Given the current state of the U.S. economy, investors looking for income, growth or a combination of both need to be more creative, in our view, with how they invest their dollars and allocate their existing funds. Certain alternative investment strategies, international markets and specific industries within the U.S. equity market appear poised to deliver risk adjusted return potential.
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 5/22/15. Rates and Economic Calendar Data from Bloomberg as of 5/26/15.
Important Information and Disclaimers
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable.
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.