Category: Monthly Commentary

Monthly Commentary

November Market Commentary

US stocks rebounded in November after receiving a boost from mid-term election results and comments by the Federal Reserve Chairman that led investors to believe the Fed might ease their pace of interest rate hikes.  Economic news was generally positive with 250,000 new hires in October, which well surpassed expectations, wages gained 3.1%, their largest gain in nearly a decade, retail spending jumped 0.8%, inflation remained below the Fed’s target rate and consumer confidence remained high.  However, two significant areas of the economy, auto sales and housing, have trended down. Existing home sales fell 5.1% from a year earlier and auto sales fell roughly 2% in October, both impacted by higher interest rates.  Oil continued to plunge in November, falling 22% over the month, ending at $50.93 a barrel.  It was the worst one-month loss since October 2008.  In November, US stocks rose 2.00% bringing the year to date return to 4.48%.

Foreign stocks gained over the month on the potential for a more accommodative Fed and reduced trade tensions.  Recent data has shown that global economic growth has slowed.  In the third quarter, Japan’s Gross Domestic Product (GDP) contracted 1.2%, while Germany’s GDP contracted 0.8%, for the first quarterly drop in three and a half years.  The European Central Bank plans to move forward with ending its bond buying program at the end of the year despite the weakening growth trend in the European Union (EU).  Consumer spending in China hit its lowest pace in five months.  The UK and EU were able to reach a draft deal to allow the UK’s exit from the Eurozone and EU leaders approved the deal, but many hurdles remain, particularly in the UK, before approval.  The US and China reopened trade talks in hopes of curbing the escalating trade war.  Emerging markets well outpaced developed markets for the month.  International stocks rose 0.95% in November but are still down 9.83% for the year to date.

Bonds rose in November as interest rates eased.  The interest rate decline was driven by concerns about global growth and comments made by Fed Chairman Powell.  In a speech he said the Fed Funds Rate was “just below” a neutral level easing investor worries that the Fed would continue to raise the Fed Funds rate aggressively.  At the Fed’s November meeting they made no changes to the Fed Funds Rate, gave a positive outlook on the economy and strongly hinted at a December rate hike.  They also expect to raise rates between two and four times in 2019.  The 10-year Treasury yield ended the month at 3.01% falling from 3.15% to start the month.  The 10-year yield is at its lowest level since mid-September.  For the month, Municipal and Treasury bonds were the top performing sectors and longer-term bonds topped shorter-term bonds.  The broad bond market gained 0.60% in November raising the year to date performance to -1.79%.

 

Index Performance  Nov.YTDTrl 1 Yr
US Stock (Russell 3000) 2.00%4.48%   5.53%
Foreign Stock (FTSE AW ex US) 0.95%-9.83%  -7.71%
Total US Bond Mkt. (BarCap Aggregate)0.60%-1.79%  -1.34%
Short US Gov. Bonds (BarCap Gov 1-5 Yr) 0.49% 0.40%   0.39%
Municipal Bonds (BarCap 1-10yr Muni) 0.88% 0.64%    1.28%
Cash (ICE ML 3Month T-Bill) 0.21% 1.69%    1.80%

 

October Market Commentary

US stocks plunged in October as a raft of concerns drove stocks to their worst monthly performance in over seven years.  The increase in long term interest rates, geopolitical concerns, a weakening earnings outlook, and US/China trade war worries all weighed on US stock performance.  While earnings are expected to grow 24% in the third quarter, an increasing number of companies have lowered their future outlooks.  Economic news has continued to be relatively positive with the unemployment rate dropping to 3.7% from 3.9% and the number of available jobs outnumbering the number of people looking for jobs by 902,000; the highest number on record.  Inflation has remained subdued, consumer confidence hit an 18 year high, and third quarter US Gross Domestic Product rose 3.5%, above expectations.  However, on the downside the 134,000 new hires for the month fell well short of expectations, auto sales fell 6%, manufacturing activity slowed, and sales of previously owned homes fell 3.4% for the seventh straight month of declines. Oil sank 10.8% over the month, ending at $65.31 a barrel, on weakening demand and higher production.  In October, US stocks plummeted 7.36% lowering the year to date return 2.43%.

Foreign stocks plunged over the month on similar concerns as in the US surrounding global growth, a US/China trade war and corporate earnings.  Eurozone growth eased to 0.2% in the third quarter, its lowest level in over four years, with Italy weighing down the region.  In addition, Italy’s bonds were downgraded by Moody’s to the lowest investment grade rating over apprehension of the country’s budget.  The European companies that have reported third quarter results to date have fallen short of earnings and revenue estimates.  The US and China remain far apart in their trade negotiations and fears are increasing that US tariffs will jump to 25% at the end of the year.  China’s third quarter growth rate slowed to 6.5%, its weakest level of growth since the financial crisis, and below expectations.  In China, auto sales, industrial output and manufacturing have all weakened in recent months.  Developed markets outpaced emerging markets for the month.  International stocks sank 8.15% in October and are now down 10.68% for the year to date.

Bonds declined in October as interest rates climbed.  Interest rates rose across the yield curve with the 10-year Treasury yield reaching its highest level since May of 2011 early in the month, before rates eased on concerns over the global economy.  The Fed’s preferred inflation measure, the personal consumption expenditures price index, rose 0.1% in September from August.  As a result, annual inflation still remains tame and below the Fed’s 2% target.  The 10-year Treasury yield ended the month at 3.15% increasing from 3.05% to start the month.  For the month, Treasury bonds were the top performing sector and shorter-term bonds topped longer-term bonds.  The broad bond market declined 0.79% in October dropping the year to date performance to -2.38%.

Index Performance  Oct.YTDTrl 1 Yr
US Stock (Russell 3000)-7.36%2.43%  6.60%
Foreign Stock (FTSE AW ex US)-8.15%-10.68%  -7.72%
Total US Bond Mkt. (BarCap Aggregate)-0.79%-2.38% -2.05%
Short US Gov. Bonds (BarCap Gov 1-5 Yr) 0.12%-0.08% -0.38%
Municipal Bonds (BarCap 1-10yr Muni)-0.26%-0.23% -0.52%
Cash (ICE ML 3Month T-Bill)0.17%1.44%   1.63%

 

September Market Commentary

US stocks once again touched new record highs during the month before ending modestly higher.  However, they posted the best quarterly performance since 2013 on strong earnings and economic news.  The US and Canada were able to reach a deal to revise the North American Free Trade Agreement relieving trade tensions with one of the US’s largest trading partners.  The US and China, however, applied new tariffs to each other and an offer to return to the negotiating table was rebuffed.  Economic news remains strong with employers adding 185,000 new hires and wage growth reaching 2.9%.  Inflation rose 0.2% in August, below expectations, consumer confidence reached the highest level in 18 years in September, and the 2nd quarter US Gross Domestic Product increased at an annual rate of 4.2%.  Oil rose more than 5% over the month, ending at $73.25 a barrel, which nears a four year high.  For the month, US stocks edged up 0.17% making the third quarter return 7.12%.  For the year to date US stocks have gained 10.57%.

Foreign stocks were the top performing asset class for the month on reduced fears over emerging markets and an improved trade outlook.  The central banks of Turkey and Russia took steps to stem investors’ concerns about their weakening currencies during the month.  The European Central Bank lowered its projections for growth, but reaffirmed its commitment to move away from easy money policies.  They expect to wind down their bond purchase program by year-end and will not look to raise interest rates until after the summer of 2019.  Economic news from Europe continues to be soft with the latest reading of the Purchasing Managers’ Index for September showing a greater than expected deceleration in the manufacturing sector. UK and European Union negotiators are at an impasse on Brexit negotiations with six months until the deadline.  Developed markets outpaced emerging markets for the month, quarter and year to date.  International stocks rose 0.53% for the month bringing the quarterly gain to 0.93%.  However, for the year to date international stocks are still down 2.75%.

Bonds fell in September on higher interest rates.  Investors moved away from safe haven investments as they became more optimistic about the current market environment.  At the Fed’s September meeting they made the widely expected move of raising the Fed Funds rate a quarter percentage point to a range of 2.0% to 2.25%.  They said they expected to raise the Fed Funds rate a quarter percent one more time this year and then a total of 1% over 2019.  The 10-year Treasury yield rose over the month to finish at 3.06%, near its high for the year.  For the month, credit bonds were the top performing sector and shorter term bonds topped longer term bonds.  For the quarter, credit bonds were again the top performing sector and performance by maturity was mixed.  The broad bond market fell 0.64% in September lowering the quarterly return to 0.02%.  For the year to date bonds have fallen 1.60%.

 

Index Performance    Sept. QTR YTDTrl 1 Yr
US Stock (Russell 3000)  0.17% 7.12%10.57%17.58%
Foreign Stock (FTSE AW ex US) 0.53% 0.93%-2.75%  2.43%
Total US Bond Mkt. (BarCap Aggregate)-0.64% 0.02%-1.60% -1.22%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)-0.28% 0.06% -0.21% -0.61%
Municipal Bonds (BarCap 1-10yr Muni)-0.50%-0.07%  0.03% -0.19%
Cash (ICE ML 3Month T-Bill)  0.15% 0.49%   1.30%   1.59%

 

 

August Market Commentary

 

US stocks hit record levels in August led by robust corporate earnings, positive trade news and solid economic news.  US corporations posted a 16.1% gain in profits in the second quarter from the prior year, the largest gain in six years.  Apple became the first company worth $1 trillion in market value.  At the end of the month the US and Mexico reached an agreement on a revision to the North American Free Trade Agreement while Canada and the US remained in negotiations.  US and China threated additional tariffs on each other during the month before agreeing to go back to the negotiating table.  In positive economic news, employers added 157,000 new hires, below expectations, but previous months were revised higher by 59,000 and the unemployment rate dropped to 3.9%.  US retail sales rose 0.5% in July well ahead of expectations, US factory output rose 0.3% and 2Q US Gross Domestic Product was revised up to 4.2% from 4.1%.  On the downside, US auto sales fell 3.7%, the Consumer Price Index rose 2.9% over the past year more than covering wage gains, and home sales fell 0.7% in July for fourth straight month of declines.  For the month, US stocks gained 3.51%, bringing their year to date gain to 10.39%.

Foreign stocks sank over the month on concerns over emerging market countries.  Emerging markets sank as the currencies of Turkey and Argentina plunged.  Worries arose that the countries would not be able to repay their debts and their troubles could ripple across emerging markets.  Concerns about European banks’ exposures to the countries have dragged down stock prices as well as concern over the future direction of Italy.  Of the European companies to report earnings to date, only approximately half topped profit estimates from analysts.  Developed markets outpaced emerging markets for the month and year to date.  International stocks fell 2.04% in August and are now down 3.26% for the year.

Bonds rose over the month as investors moved to safe haven assets on concerns about global trade and weakness from emerging markets.  At the conclusion of their meeting, the Federal Reserve left the Fed Funds rate as is although they expect to raise the Fed Funds rate a quarter percent at their September meeting.  Also, they continued to indicate the economy was performing well, but there was debate over how protectionist trade policies would impact the economy.  The Bank of England raised its benchmark interest rate a quarter percent to 0.75%, its highest level since 2009 in order to combat inflation.  The 10-year Treasury yield fell over the month to finish at 2.85% down from 2.96% to start August.  For the month, longer-term bonds outpaced shorter-term bonds, with US government bonds the top performing sector.  The broad bond market gained 0.64% in August reducing the year to date decline to 0.96%.

 

Index Performance    Aug. YTDTrl 1 Yr
US Stock (Russell 3000)  3.51%10.39%20.25%
Foreign Stock (FTSE AW ex US)-2.04%-3.26%  3.80%
Total US Bond Mkt. (BarCap Aggregate) 0.64%-0.96% -1.05%
Short US Gov. Bonds (BarCap Gov 1-5 Yr) 0.43% 0.07%-0.66%
Municipal Bonds (BarCap 1-10yr Muni) 0.09%  0.53% -0.20%
Cash (ICE ML 3Month T-Bill)  0.18%   1.15%   1.52%

 

 

July Market Commentary

US stocks surged in July driven by strong corporate earnings and economic news.  While some companies posted weak results (notably Facebook and Netflix), 54% of firms in the S&P 500 have reported earnings to date and 82% have topped estimates.  Revenue is expected to grow 8.7%. During the month, tariffs went into effect on billions of dollars’ worth of a range of US and Chinese goods with more tariffs set to go into effect in August.  Economic news showed the US to be in a strong position with 213,000 new employees added in June, initial jobless claims reaching its lowest level since 1969 and the unemployment rate rising to 4.0% due to more workers entering the workforce.  US auto sales rose 2.1% in June, US retail sales gained 0.5%, manufacturing output rose 0.8% and durable goods orders increased 1.0%.  Finally, US GDP rose 4.1% in the second quarter, the fastest pace in nearly four years.  For the month, US stocks gained 3.32%, bringing their year to date gain to 6.64%.

Foreign stocks jumped over the month on a reduction in trade war fears for some regions and supportive monetary policy.  After meeting with the European Commission President, the US and Europe agreed to halt any further tariffs as they work to reduce trade barriers.  Of the European companies to report earnings to date 60% have topped revenue expectations.  After its meeting, the ECB left its key rates and monetary stimulus unchanged and said it would expect to keep interest rates low well into 2019.  Developed markets slightly outpaced emerging markets for the month.  International stocks gained 2.50% in July, but are down 1.24% for the year to date.

Bonds were flat for the month as interest rates edged up.  Minutes from the Fed’s June meeting showed officials were willing to raise the Fed Funds rate over the next year to a level that no longer seeks to spur growth. In testimony before congress, Fed Chief Powell gave a rosy assessment of the economy and said the Fed planned to continue to raise rates gradually.  However, if trade tensions escalated he said it could be a drag on the economy.  The 10-year Treasury yield rose over the month to finish at 2.96% up from 2.85% to start July.  For the month, longer-term bonds outpaced shorter-term bonds, with credit and muni bonds being the top performing sectors.  The broad bond market ticked up 0.02% in July. For the year to date, bonds have declined 1.59%.

 

Index Performance    JulyYTDTrl 1 Yr
US Stock (Russell 3000)3.32%6.64%16.39%
Foreign Stock (FTSE AW ex US)2.50%-1.24%  6.50%
Total US Bond Mkt. (BarCap Aggregate)0.02%-1.59%-0.80%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)0.09%-0.36%-0.74%
Municipal Bonds (BarCap 1-10yr Muni) 0.35%  0.45%  0.28%
Cash (ICE ML 3Month T-Bill)  0.16%  0.97%   1.43%