Market Update: Q3 2019

Market Update: Q3 2019

The second quarter of the year finished off in a very similar fashion to the way the first quarter did: with strong positive returns. All the major stock indices for both quarter and year to date periods were up sharply, as we now look into the second half of the year.

Now that we’re a few weeks into the beginning of the third quarter, equities continue breaking through all time highs. The positive economic news hasn’t stopped. Unemployment remains incredibly low, inflation continues to be stable, and the threat of a tariff war hasn’t translated to downward pressure on market prices. Yet, at least.

Interestingly, the US Treasury yield curve is inverted, as the yield on short term notes is higher than the yield on longer term bonds. As I wrote about last quarter, long term bond yields reflect the market’s impression of the long term economic outlook. And with longer term yields under pressure, there continues to be a disconnect between what the bond market and stock market are signalling. Bond markets appear to believe a slowdown is on the horizon, while the stock market is plowing ahead and not looking back.

Elsewhere in the world, stocks in developed international economies and emerging economies were both up, but trailed the US. We’re now at a point where the valuation spread between US and non-US equities is the largest it’s been in over 40 years. In other words, stocks from non-US countries are the cheapest they’ve been compared to US stocks for a very long time. This is one of the reasons I advocate for a globally diversified portfolio, and urge my clients to maintain a balanced approach. It’s far more likely that US stocks will underperform international stocks over the next decade.

Market Update: Q2 2019

Market Update: Q2 2019

After a very strong first quarter in global stocks, the U.S. stock and bond markets are telling very different stories. The stock market continues to lurch higher, driven by expected earnings, economic growth, and investor optimism. The bond market, on the other hand, is not so optimistic. A flattening and even inverted yield curve shows far less optimism in the U.S. economy.

The “right” take is probably somewhere in between these two extremes. The economic data shows a mixed bag. Jobless claims are at a 50-year low, but payroll gains in March came in lower than expected. The ISM Manufacturer’s Index was up sharply in March, but retail sales and durable goods orders fell.

Internationally, we continue to watch the UK Brexit proceedings and the country’s wrestling match with the European Union (and itself). First quarter stock returns were very strong abroad as well, but a key leading indicator shows that trouble may be brewing. This quarter’s market review will tackle all these topics, in addition to a very strong quarter for real estate investment trusts (REITs).

Market Update: Q1 2019

Market Update: Q1 2019

As bloody as the fourth quarter of 2018 was, the beginning of 2019 has almost erased all the damage. The S&P 500 is only a couple points off the early Q4 high, and global stock indices are following in lockstep.

So does that mean we should expect stocks to continue rocketing upward? Probably not. Economic data has slowed somewhat, and if the market continued at its current pace to start the year, stocks would be up 65%. Which is…..unlikely.

The Federal Reserve is still signaling several rate hikes throughout the year, but has relaxed the pace somewhat after some weaker economic numbers. This quarter’s market update will dig into what’s going on in the economy, and how that could affect stock and bond markets both here and abroad.

Market Update: Q3 2018

Market Update: Q3 2018

Normally when I write my quarterly market update, I don’t begin until a few days after the quarter’s ended. This gives me time to digest the data from the previous three months, and synthesize it into (hopefully useful) thoughts about what’s going on in the markets and in the world, and how that might impact your portfolio.

I also get some help with the research. You’ll notice many of the charts I use come from Dimensional Fund Advisors, and I leverage economic & financial data from many of the financial periodicals I read, like Barron’s, Wall St. Journal, and Financial Times.

I’m starting with this background because U.S. stock markets had a very strong third quarter, with the S&P 500 up 7.71%. In the first few days of the fourth quarter, the story has been starkly different. The Dow Jones fell about 800 points yesterday, and the financial media would have you believe the world is about to end.

To put some context to yesterday’s drop, the S&P 500 fell 97 points. This represents about 3.4% of its total value. Since the bear market in 2009 ended, yesterday marks the S&P’s 20th day losing 3% or greater.

And as painful as it is to see the value of your portfolio fall, we really haven’t lost that much ground. As I write this, the index is trading at about 2770, which is a low we haven’t seen since….June.

So before we dive into what happened in the third quarter, don’t be alarmed if the current sell off continues. It was always bound to happen. My guess is that it’s only a short term “pressure release valve”. But even if it’s not, your strategy shouldn’t change because the market lost a few points. Your portfolio should be built with this expectation in the first place.

Market Update: Q2 2018

Market Update: Q2 2018

Stock markets here in the U.S. are traditionally pretty quiet over the summertime.  The kids are out of school, the weather is hot, and many financial managers, traders, and practitioners prefer to spend their time on vacation or in the pool. 

But like many industries, finance is changing rapidly today, and traditions are being upheld less frequently.  This summer, while the markets have more or less adhered to the summertime lull tradition, the financial news has not.  Among other topics of note, we have:

  • New tariffs on imports here in the U.S., and escalating trade tensions as a result;

  • Unceasing & fresh political headlines, and;

  • A tightening monetary policy by the Federal Reserve Bank here in the U.S.  

In response to all this, markets here in the U.S. haven't blinked.  (Or maybe they haven't opened their eyes yet).  Volatility continues to be extremely low compared to the last 25 years of returns data.  And that includes the returns of bonds and foreign currencies too, not just stocks. 

Nevertheless, even if the market doesn't feel that all this news is worth rolling over for, it's important for us to keep an eye on what's going on.  Read on for our quarterly update on the global capital markets.