Monthly Economic Update January 2018: Continued Volatility To Be Expected


Global stock markets started the new year with a bang, posting the highest monthly return in recent memory.  The U.S. dollar declined against a broad range of currencies, boosting international investments, particularly emerging markets, and commodities.  The strong start to the year further stretched valuations, particularly those of large cap growth stocks which have seen the largest gains.  Although economic expansion and low interest rates are generally flowing through to corporate profits, several major tech companies released disappointing earnings.  At month-end, two threats to the market rally materialized as U.S. interest rates spiked and stock volatility bounced back.  The 10-year Treasury hit its highest level in over four years. Most fixed income sectors declined with long-term bonds falling the most.

Economic data released during January was positive overall.  Although the Fed upgraded its inflation expectations, U.S. inflation news has been tame.  Inflation in Japan and Europe has been disappointingly weak despite the continuation of easy monetary policies.  Fourth quarter U.S. GDP growth was an annualized 2.6%, lower than the two previous quarters, but the key consumer spending component was positive.  The housing and labor markets remain healthy.  U.S. tax cuts are expected to spur economic growth over the medium-term and may also push inflation higher.  Continued volatility in the stock markets should be expected as investors become familiar with the new Fed Chairman Jerome Powell and respond to geopolitical and domestic policy uncertainty.

 

Disclaimers: This commentary was written by Noreen Johnston, CFA, Director of Research, and Daniel Cohen, Investment Analyst at Summit Equities, Inc. and Summit Financial Resources, Inc. Source of performance: Morningstar®. Indices are unmanaged and cannot be invested into directly. The investment and market data in this newsletter is not an offer to sell or purchase any security or commodity. Past performance does not guarantee future results. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-dominated securities. The Bloomberg Commodity Index measures the performance of the commodity sector representing an unleveraged, long-only investment in commodity futures that is broadly diversified, and primarily liquidity weighted. The Dow Jones U.S. Real Estate Index measures the performance of the real estate sector of the U.S. equity market. It includes companies in the following industries: real estate holding and development and Real Estate Investment Trusts. The Wilshire 5000 Total Market Index measures the performance of all U.S. headquartered equities with readily available price data. It is market capitalization-weighted and is designed to track the overall performance of the U.S. stock market. The S&P 500 Index is a market capitalization-weighted Index of 500 widely held stocks often used as a proxy for the stock market. It measures the movement of the largest issues. Standard and Poor’s chooses the member companies for the 500 based on market size, liquidity and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.  Information throughout this Newsletter or any other statement(s) regarding markets or other financial information are obtained from sources which we and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. Opinions expressed are subject to change without notice and are not intended to be investment advice or a guarantee of future performance.  Consult your financial professional before making any investment decision. Securities and Investment Advisory Services offered through Summit Equities, Inc. Member FINRA/SIPC, and Financial Planning Services offered through Summit Equities, Inc.’s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666. 20180223-208

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