Monthly Economic Update May 2018: U.S. Investments Dominated While Higher Interest Rates Could Lead To Volatility
U.S. investments dominated the month with stocks, bonds and real estate all posting healthy returns. Robust corporate profits and a positive outlook over the coming months overtook the headwind from rising interest rates. Strong returns from the technology sector led to sharp outperformance by small capitalization and growth stocks. International investments were hampered by weaker currencies versus the U.S. dollar and stock market downturns in Europe and Latin America. International stocks, including emerging markets, are now underwater year to date. Commodities did well overall, despite a decline in oil prices. The 10-year U.S. Treasury, the closely watched bellwether for economic growth and inflation, breached the 3% threshold before falling back by month-end. Asset flows favored defensive fixed income investments, resulting in positive returns for high quality U.S. bonds. High yield bonds were flat for the month.
Geopolitical risks continued to rattle investors with trade tensions, the future of the Eurozone and the nuclear ambitions of Iran and North Korea generating headlines during the month. Europe appears to be losing momentum and slowing global trade is sapping emerging countries. In the U.S., a strong employment report, high business confidence and support from the manufacturing sector bode well for economic growth. However, the housing market is having a soft year during the spring selling season and consumer spending has been unusually weak. Core inflation is heating up and a key inflation metric followed by the Federal Reserve has recently spiked. Higher interest rates and inflation are a threat to stock market valuations and may lead to further market volatility.
Source for economic data: Bloomberg. Source for market returns: MorningstarÂ®. This commentary was written by Noreen Johnston, CFA, Director of Research and Daniel Cohen, Senior Investment Analyst at Summit Equities, Inc. and Summit Financial Resources, Inc. 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. Â 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.Â 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.â€™s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666. 20180627-610