SJS Weekly Market Update
SJS Investment Services creates a weekly market update to summarize performance characteristics for major stock and bond indices.
Each week, SJS Investment Services creates a Weekly Market Update to summarize performance characteristics for major stock and bond indices. Please click on the below image to view the most recent Weekly Market Update PDF.
Past Weekly Market Updates:
Important Disclosure Information:
Past performance does not guarantee future results. There is no guarantee investment strategies will be successful. Diversification neither assures a profit nor guarantees against a loss in a declining market. Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. This material has been prepared for informational purposes only.
All returns represent total return (including reinvestment of dividends) for stated period provided by Morningstar Direct.
Equity indexes are as follows: US Market (Russell 3000 TR USD Index measures the performance of the largest 3000 US companies representing approximately 98% of the investable US equity market. It is market-capitalization weighted.); US Large Cap (S&P 500 TR USD Index measures the performance of 500 widely held stocks in US equity market. Standard and Poor's chooses member companies for the index based on market size, liquidity and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. Since mid 1989, this composition has been more flexible and the number of issues in each sector has varied. It is market capitalization-weighted.); US Small Cap (Russell 2000 TR USD Index measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000 and includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.); Global Market (MSCI ACWI GR USD Index measures the performance of the large and mid cap segments of all country markets. It is free float-adjusted market-capitalization weighted.); Intl Development (MSCI EAFE GR USD Index measures the performance of the large and mid cap segments of developed markets, excluding the US & Canada equity securities. It is free float-adjusted market-capitalization weighted.); Emerging Markets (MSCI Emerging Markets GR USD Index measures the performance of the large and mid cap segments of emerging market equity securities. It is free float-adjusted market-capitalization weighted.); US Real Estate (DJ US Select REIT TR USD Index measures the performance of publicly traded real estate investment trusts(REITs) and REIT-like securities. The index is a subset of the Dow Jones US Select Real Estate Securities Index (RESI). The index is designed to serve as proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate.); Intl Real Estate (S&P Global Ex US REIT TR USD Index measures the performance of publicly traded REITs and REIT-like securities, excluding those in the U.S., and is a sub-index of the Dow Jones Global ex-U.S. Select Real Estate Securities Index (RESI). The index is designed to serve as a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate.
Fixed Income indexes are as follows: US Aggregate – (Bloomberg Barclays US Aggregate Bond TR USD Index measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. It rolls up into other Barclays flagship indices, such as the multi-currency Global Aggregate Index and the U.S. Universal Index, which includes high yield and emerging markets debt.); Global Aggregate (Bloomberg Barclays Global Aggregate TR USD Index measures the performance of global investment grade fixed-rate debt markets, including the U.S. Aggregate, the Pan-European Aggregate, the Asian-Pacific Aggregate, Global Treasury, Eurodollar, Euro-Yen, Canadian, and Investment Grade 144A index-eligible securities.); US Short Treasury – ICE BofAML 1-3Y US Trsy TR USD Index measures the performance of US dollar denominated sovereign debt publicly issued by the US government in its domestic market. Qualifying securities must have at least 1 year and less than 3 year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $1 billion. It is capitalization-weighted.); US Interm Corp & Govt (ICE BofAML 1-5Y US Corp&Govt TR USD Index is a subset of BofA Merrill Lynch US Corporate & Government Index including all securities with a remaining term to final maturity less than 5 years. The BofA Merrill Lynch US Corporate & Government Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market, including US Treasury, US agency, foreign government, supranational and corporate securities. Treasury Yields are as follows: US Treasury T-Bill Constant Maturity Rates (These rates are commonly referred to as "Constant Maturity Treasury" rates, or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of indicative, bid-side market quotations (not actual transactions) obtained by the Federal Reserve Bank of New York at or near 3:30 PM each trading day. The CMT yield values are read from the yield curve at fixed maturities, currently 1, 2, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.)
Style Returns: Style box returns are based on the Russell Index Style - Russell 1000 Value Index (Measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 1000 Index (Measures the performance of the largest 1,000 securities in the Russell 3000 based on market cap and current index membership), Russell 1000 Growth Index (Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values), Russell Mid Cap Value Index (Measures the performance of those Russell Mid Cap companies with lower price-to-book ratios and lower forecasted growth values), Russell Mid Cap Index (The Russell Midcap Index includes the smallest 800 securities in the Russell 1000), Russell Mid Cap Growth Index (Measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values),Russell 2000 Value Index (Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 2000 Index (The Russell 2000 includes the smallest 2000 securities in the Russell 3000), Russell 2000 Growth Index (Measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values).
Sector Returns: Sectors are based on the Russell Sector Classification methodology. Return data are calculated by Morningstar Direct using constituents and weights as provided by MSCI for the All Country World Index.
Market Indicator Indexes are as follows: Inflation - (The Consumer Price Index for All Urban Consumers: All Items (CPIAUCSL) is a measure of the average monthly change in the price for goods and services paid by urban consumers between any two time periods. It can also represent the buying habits of urban consumers. This particular index includes roughly 88 percent of the total population, accounting for wage earners, clerical workers, technical workers, self-employed, short-term workers, unemployed, retirees, and those not in the labor force.); Unemployment - (The unemployment rate represents the number of unemployed as a percentage of the labor force. Labor force data are restricted to people 16 years of age and older, who currently reside in 1 of the 50 states or the District of Columbia, who do not reside in institutions (e.g., penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces. This rate is also defined as the U-3 measure of labor underutilization. The series comes from the 'Current Population Survey (Household Survey)').
Suggested Reading
What A Difference A Year Makes: Bonds
For 2022, the bond asset class started the year with extremely low yields and less desirable return expectations. Going into 2023, the higher yields provide bond investors with a brighter outlook!
By Senior Advisor Kirk Ludwig, CFIP, AIF®.
The past year presented the financial markets with high volatility and change. Many of the imbalances caused by the pandemic continued to disrupt segments of the global economy and markets. From inflation soaring to a multi-decade high of 9% in June 2022, to lumber prices plummeting by nearly 65%, to global stocks trading in bear market territory for much of the year, volatility was widespread throughout financial markets.[1][2][3]
Given the complexity of the economic landscape, and the higher uncertainty that came with it, the volatility was not unusual from a historical perspective. However, one market that DID surprise many investors was the U.S. bond market. As one of the largest and most heavily traded financial markets in the world, the U.S. bond market was caught off guard as the Federal Reserve ramped up its campaign to battle inflation by aggressively raising short-term interest rates.[4]
The following chart puts perspective on the changes in Treasury rates across the yield curve. The one-year U.S. Treasury note started the year yielding 0.39% and ended with a yield of 4.73%. As illustrated, it wasn’t just short-term rates that were impacted - rates for all other maturities across the yield curve rose as well.
Source: “Daily Treasury Par Yield Curve Rates“. U.S. Department of the Treasury, treasury.gov.
It's not uncommon for the Federal Reserve to raise or lower interest rates to control economic growth and inflation. However, in this case, the surprise was the speed and magnitude of the rate hikes. With the starting point of short-term interest rates near 0%, bonds didn’t stand much of a chance to generate enough income to offset the change in prices associated with the rapid increase in yields. As a result, the general U.S. bond market suffered one of its worst years in recorded history.[5]
There is a silver lining to higher yields! Over the past decade, conservative investors holding short-term bonds, CDs, money market vehicles, or cash in checking & savings accounts have suffered historically low returns.[6] Now, the spike in interest rates is providing yields on conservative ultra-short-term investments such as one-month Treasury bills at 4% or better. Those willing to extend Treasury maturities to a year can expect to see yields north of 4.5%.
As the Federal Reserve continues its mission of driving inflationary pressures lower, while attempting to avoid a recession, the Fed may continue to raise interest rates further in the near future. We believe further interest rate increases are less concerning compared to a year ago because the risk and return tradeoffs are more favorable for bond investors today.
At SJS, we are consistently monitoring all segments of the markets and assessing the risk and return characteristics of each asset class. For 2022, the bond asset class started the year with extremely low yields and less desirable return expectations. Going into 2023, the higher yields provide bond investors with a brighter outlook!
Important Disclosure Information & Sources:
[1] “Consumer Price Index for All Urban Consumers: All Items in U.S. City Average“. Federal Reserve Bank of St. Louis, fred.stlouisfed.org.
[2] “Lumber (LBS)". Nasdaq, nasdaq.com.
[3] “SJS Weekly Market Update“. SJS Investment Services, 2022, sjsinvest.com.
[4] “Money, Banking, & Finance“. Federal Reserve Bank of St. Louis, fred.stlouisfed.org.
[5] The general U.S. bond market is represented by the Bloomberg U.S. Aggregate Bond Index, which measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. Data source: Morningstar, 1976-2022.
[6] “Interest Rates“. Federal Reserve Bank of St. Louis, fred.stlouisfed.org.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Statements contained in this article that are not statements of historical fact are intended to be and are forward looking statements. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Indices are not available for direct investment. Index performance does not reflect the expenses associated with management of an actual portfolio. Index performance is measured in US dollars. The index performance figures assume the reinvestment of all income, including dividends and capital gains.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice.
Hyperlinks to third-party information are provided as a convenience.