The Citrus Group at Morgan Stanley Monthly Newsletter

Transcription

1 The Citrus Group at Morgan Stanley Monthly Newsletter Issue 64 August 31 st, 2017 Inside This Issue 1 Equity Markets 2 Fixed Income 3 Conclusion 3 Technical Levels to Watch 4+ Disclosures & Credits Equities Continue Hold Up In July, the equity markets produced strong enough gains month over month to post the best percentage returns we have seen since February of this year. As July came to an end, equity markets experienced the types of price fluctuations which concerned both professional and experienced investors. In August, investor confidence and U.S. equity markets were further tested as political comments regarding Charlottesville and North Korean tension dominated the headlines. Noted investment strategist, Sam Stovall reminded investors in an August 4 th Money magazine interview that stocks are entering into a historically challenging two-month stretch This article also emphasized that since 1945, the S&P 500 Index has averaged negative returns in August and September (-0.2% and -0.7% respectively). In the most recent 30 years, August losses have been even worse, averaging -1.1%. The Wall Street Journal lead story on August 21 st, 2017 was titled, Warning Signs Mount as Stocks Tumble. The following day the market opened lower and buyers came back in at support levels. In the end, we view this as a sign of health as the S&P 500 finished 1.35 points higher for the month. Shallow as these corrections have been during the year, these pull backs have been generally viewed as buying opportunities. Even heathy markets can experience a correction. Given where we are, we feel any short-term pull back is unlikely to turn into a longer decline. Our ongoing analysis continues to support the primary (long-term) trend for higher prices. We continue to monitor aspects of the market, looking for indicators of a potential breakdown. We observed the forces of supply and demand and continue to feel comfortable with the health and direction of the equity markets. The chart on the following page illustrates the S&P 500 s current support levels. The Citrus Group at Morgan Stanley 1

2 S&P 500 Index January 1, 2017 to August 31, 2017 Support Levels for S&P 500: 2410, 2360, 2330 Thompson Reuters 8/31/2017 Fake News in Fixed Income In June, the Federal Reserve raised the overnight borrowing rate higher by.25%. This hike was the 4 th move higher in short-term rates over 18 months. Longer-term rates have failed to follow these rate hikes higher. Last month in our July newsletter we referenced Alan Greenspan, the former chairman of the Federal Reserve, about why investors who are concerned about a stock market should instead be worried about bonds. The real problem is that when the bond-market bubble collapses, long-term rates will rise. Moreover, on 9/2/2017, the Barron s cover had the following caption; After an eight-year climb, stocks are pricey, rates are rising, and the world is in turmoil. Our guide to spotting the turn. Is this fake news? In our opinion, it is at least very misleading. The 10yr US Treasury was 2.3% when the Federal Reserve first took action in December 2015 and closed on 8/31/17 at 2.121%. 10yr US Treasury 12/1/2015-8/31/2017 Is this fake news? It is at least very misleading. The 10yr US Treasury was 2.3% when the Federal Reserve first took action in December 2015 and closed on 8/31/17 at 2.121%. -Thompson Reuters 8/31/2017 The chart above illustrates rates have not increased over a short period of time. The chart on the next page is a further example of the longer-term trend of lower yields remains in place. The Citrus Group at Morgan Stanley 2

3 10yr US Treasury 8/31/2007-8/31/2017 Will this be the year we see the end of a 30+ year bull market for bonds? While most experts have been far too early to call an end to low rates, we recognize how many times this question has been answered incorrectly over the last few years. -Thompson Reuters 8/31/2017 Conclusion In conclusion, we maintain our bullish opinion regarding the broad equity markets. This optimistic outlook is due to the current technical picture being drawn by the market. We also view the broad fixed income markets positively as both the long-term and intermediate trend point to lower yields and higher prices. Lastly, we continue to avoid the commodity markets however we do recognize the recent move higher in gold. We will continue to monitor and adjust client portfolios accordingly. As always, please let us know any questions you may have. We believe in complete transparency and are happy to walk you through our investment philosophy in as much detail as you like. Best regards, The Citrus Group Key Technical Levels to Watch Key technical levels we will be watching for the S&P 500 Index are as follows: Resistance 2500 Support 2410, 2360, & 2330, S&P 500 Index July 31 st, 2017 Closing Value Key technical levels we will be watching for the 10 Year Treasury Yield Index are as follows: Resistance 2.35%, 2.4% & 2.5% Support 2.15%, 2% & Year Treasury Yield Index July 31 st, 2017 Closing Value 2.121% The Citrus Group at Morgan Stanley 3

4 Key technical terms we use in determining investment entry and exit points are support and resistance levels. Wikipedia defines the two as follows: i A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level. A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level. The Citrus Group at Morgan Stanley 201 E Pine St STE 1100 Orlando, FL Direct Fax Toll Free gaury.hernandez@morganstanley.com Technical analysis is the study of past price and volume trends of a security in an attempt to predict the security's future price and volume trends. Its limitations include but are not limited to: the lack of fundamental analysis of a security's financial condition, lack of analysis of macroeconomic trend forecasts, the bias of the technician's view and the possibility that past participants were not entirely rational in their past purchases or sales of the security being analyzed. Investors using technical analysis should consider these limitations prior to making an investment decision. This material is intended only for clients and prospective clients of the Portfolio Management program. It has been prepared solely for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. The individuals mentioned as the Portfolio Managers are Financial Advisors with Morgan Stanley participating in the Morgan Stanley Portfolio Management program. The Portfolio Management program is an investment advisory program in which the client s Financial Advisor invests the client s assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley Smith Barney LLC ADV Part 2, available at or from your Financial Advisor. The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor s individual circumstances and objectives. SPX: S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market. An investment cannot be made directly SPMUNUST: The S&P National AMT-Free Municipal Bond Index is a broad, comprehensive, market value-weighted index designed to measure the performance of the investment-grade tax-exempt U.S. municipal bond market. An investment cannot be made directly INDU: Dow Jones Industrial Average is a price-weighted index of the 30 blue-chip stocks and serves as a measure of the U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. An investment cannot be made directly MXWD: The MSCI (Morgan Stanley Capital International Inc.) All Country World Index (ACWI) is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of the developed & emerging markets. As of January 2012 the MSCI World Index consisted of large and mid-cap representation across 23 Developed Markets (DM) & 23 Emerging Markets (EM) countries. An investment cannot be made directly The Citrus Group at Morgan Stanley 4

5 LBUSTRUU: The Barclays Capital U.S. Aggregate Index covers the U.S. Dollar-denominated, investment-grade, fixed-rate, taxable bond market segment of SEC-registered securities. The index includes bonds from the U.S. Treasury, Government-Related, Corporate, Mortgage-Backed, Asset-Backed, and Commercial Mortgage-Backed Securities sectors. An investment cannot be made directly in a market index. IRX: The Chicago Board Options Exchange Short-Term Interest Rate Index is based on the annualized discount rate of the most recently auctioned 13-week Treasury Bill. The index is calculated by multiplying the T-bill rate by a factor of 10. An investment cannot be made directly FVX: The Chicago Board Option Exchange 5-Year T-Note Index is based on the yield-to-maturity of the most recently auctioned 5-yr T-note. The index is calculated by multiplying the T-note YTM by a factor of 10. An investment cannot be made directly TNX: The Chicago Board Option Exchange 10-Year T-Note Index is based on the yield-to-maturity of the most recently auctioned 10-yr T-note. The index is calculated by multiplying the T-note YTM by a factor of 10. An investment cannot be made directly TYX: The Chicago Board Option Exchange 30-Year T-Note Index is based on the yield-to-maturity of the most recently auctioned 30-yr T-note. The index is calculated by multiplying the T-note YTM by a factor of 10. An investment cannot be made directly The Bloomberg US Treasury Bond Index is a rules-based, market value weighted index engineered to measure the performance and characteristics of fixed rate coupon U.S. Treasuries which have a maturity greater than 12 months. To be included in the index a security must have a minimum par amount of 1,000MM. An investment cannot be made directly The Bloomberg US Corporate Bond Index is a rules-based market-value weighted index engineered to measure the investment grade, fixed-rate, taxable, corporate bond market. It includes USDdenominated securities publicly issued by U.S. and non-u.s. corporate issuers. To be included in the index a security must have a minimum par amount of 250MM. An investment cannot be made directly RTY: 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 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. An investment cannot be made directly RIY: The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. The Russell 1000 Index is a subset of the Russell 3000 Index representing approximately 70% of the total market capitalization of that index. It includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 is constructed to provide a comprehensive and unbiased large-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true large-cap opportunity set. An investment cannot be made directly The Barclays U.S. Treasury Bills: 1-3 Months TR Index Value Unhedged (LD12TRUU) includes all publicly issued zero coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and nonconvertible. An investment cannot be made directly The Russell 2500 Index is composed of the smallest 2500 securities in the Russell 3000 Index. The Russell 2500 is constructed to provide a comprehensive and unbiased barometer for the small to mid-cap segment of the U.S. equity universe. An investment cannot be made directly The Russell 1000 Index consists of the largest 1000 companies in the Russell 3000 Index. This index represents the universe of large capitalization stocks from which most active money managers typically select. The index was developed with a base value of as of December 31, An investment cannot be made directly The New York Stock Exchange ARCA S&P Equal Weight Index (SPXEWI) is designed to track the equally weighted performance of the 500 constituents in the S&P 500. An investment cannot be made directly Charts and market data provided by Bloomberg. Morgan Stanley Smith Barney LLC. Member SIPC. i Wikipedia as of The Citrus Group at Morgan Stanley 5