The Bull Market “Celebrates” its 10 Year Anniversary
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 03/08/19. Rates and Economic Calendar Data from Bloomberg as of 03/11/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
As they say, all good things must come to an end. Global equities were on fire out of the gates in 2019, certain major averages were boasting lengthy weekly consecutive gains, and trade negotiation settlement optimism was relatively high. However, market participants extinguished those flames last week with 5 consecutive down days in U.S. markets. The S&P 500 Index and the Dow Jones Industrial average lost 2.12% and 2.17% respectively. Small cap stocks, as measured by the Russell 2000 Index, were hit even harder retreating 4.23%. Despite the sell-off, small cap stocks still lead the way year-to-date. Looking overseas, international equities were unable to avoid the more bearish sentiment last week as global growth concerns drove developed and emerging markets down 1.91% and 1.99% respectively. Consistent with the “risk-off” stance of investors, fixed income prices rose for the week sending yields lower. Across the treasury yield curve, levels are now below where they started the year following the Q4 2018 equity sell-off. For example, the 10-year U.S. Treasury yield finished the week at 2.62%, down 14 basis points from the week before.
Coincidentally, last week also marked the 10 year anniversary of the current bull market. A decade ago, March 2009, marked what would become one of the best times in history to buy stocks. The S&P 500 index rose more than 400% since its bottom. According to the Wall Street Journal, the rise has generated more than $30 trillion in wealth. Adjusted for inflation, that is the most wealth created during any bull run on record. However, many would agree that the bull market is now losing steam and can point to some softness in the global economy, as evidenced recently by reports out of the U.S., Europe, and China for examples of this slowing.
Despite this, we continue to contend that the theme of “slowing BUT growing” will remain intact throughout 2019. This means there is still wealth to be generated, although opportunities may prove more difficult to find than we’ve seen during certain periods of this record bull run. To this end, investors may want to consider looking at companies that have strong balance sheets and have the confidence to increase their dividends as we expect dividend income to again become an even more important component of total return in the months and years ahead.
In conclusion, we can’t stress enough the importance of working with an experienced financial professional to help manage portfolios through various market cycles within an appropriately diversified framework that is consistent with investors objectives, time-frame, and tolerance for risk.
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.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
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.