2018 3rd Quarter in Review: U.S. Stocks Continue to Impress
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 09/28/18. Rates and Economic Calendar Data from Bloomberg as of 10/01/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global capital markets were mixed on the last week of the 3rd quarter. Equity markets struggled to find solid footing while fixed income markets put forth moderately positive performance, following a highly anticipated Federal Funds Rate increase by the Federal Reserve. In the U.S., the S&P 500 Index retreated 0.51%, settling at a level of 2914, while the Russell Midcap Index lost 1.01% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, followed the lead of its larger counterparts, dropping 0.86%. On the international equities front, developed markets lagged emerging markets falling by 0.88% and 0.26% respectively. Finally, the 10 year U.S. Treasury yield settled at a level of 3.05%, sustaining above the 3% ceiling that had been breached in early September.
The 3rd quarter of 2018 has officially come to an end, and if your portfolio was heavily allocated toward U.S. equities you’ll hope for a repeat in the 4th quarter. U.S. equities sped past all other asset classes outperforming by a steep margin, as U.S. Large Cap and U.S. Small Cap stocks soared 7.7% and 3.6% higher; Global High Yield Fixed Income, an asset class that historically performs well when interest rates rise, displayed the next best performance striding 2.0% higher. Despite constant headlines related to trade negotiations, and corresponding tariffs, investors appeared to collectively concentrate on record setting corporate profits and robust economic growth. Of course, investors also rejoiced news that the U.S. and Canada had finally come to an agreement regarding trade terms.
Even emerging markets, an area riddled with country specific issues, experienced a moderately better quarter than the quarter before. While tariff negotiations continued to weigh on emerging markets as a whole, two nations that had been – and continue to be—a major source of concern took steps to remedy the problem. Turkey and Argentina both suffer from dangerously high borrowing costs, as the yield on each nation’s sovereign debt recently reached levels in excess of 20%; a problem that only compounded as each respective country saw their nation’s currency decline, leading to precariously high inflation levels. Fortunately both nations took steps to increase the overnight lending rate, an action that should depress inflation readings to a more controllable level.
As an expected end to a strong quarter, investors saw Federal Reserve Chairman Jerome Powell increase the federal funds rate by 25bps, which marks the third increase for 2018. As interest rates move higher, and a decade long equity bull market continues to age, attractive investment opportunities within fixed income and equity markets will become increasingly difficult to identify. It’s during such times that a balanced and diversified portfolio can be paramount. As a result, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios. If you would like to learn more about how we are helping clients invest dynamically and consistently with their own goals, timeframe and tolerance for risk, please do not hesitate to speak with your Hennion & Walsh Financial Adviser.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.
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.
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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 REITs that primarily own and operate income-producing real estate.