Category: Monthly Commentary

Monthly Commentary

January Market Commentary

US stocks had their best January in over 30 years driven by renewed faith in the US economy, strong corporate earnings and by a dovish Fed.  After investors feared a significant slowdown in earnings growth, companies in the S&P 500 have reported a 12% increase in 4th quarter profits compared to a year earlier, ahead of expectations.  Fed Chairmen Powell stated in multiple speeches that the Fed would be patient with any changes in monetary policy.  Economic news reassured investors over the month with the December jobs report showing 312,000 new hires, well outpacing expectations.  Wage growth rose 3.2% from a year earlier and past jobs reports were revised higher by 58,000 new hires. Inflation rose by less than 2% in December, compared to a year earlier, providing consumers more real earnings growth. However, US manufacturing, auto sales and home sales all cooled in December.  Oil rebounded with equities, gaining 18% over the month.  In January, US stocks soared, gaining 8.58%.  However, over the trailing twelve months stocks are down 2.26%.

Foreign stocks surged over the month, more than bouncing back from their December declines, aided by US economic news, stimulative measures in China and the European Central Bank (ECB) leaving open the possibility of additional stimulus measures.  Chinese manufacturing contracted for the first time since May 2017 and China’s GDP growth in 2018 was 6.6%, its slowest pace of growth since 1990. As a result, China’s central bank added roughly $38 billion to the country’s large and mid-size banks to boost lending and help the economy.  In Europe, manufacturing was its weakest in more than a year, Germany and France’s GDPs both grew 1.5% in 2018 down from 2.2% and 2.3%, respectively, from 2017 and Germany’s business sentiment fell sharply.  The ECB acknowledged that Europe’s outlook had weakened since December and said it could consider additional stimulus measures if needed.  UK’s Parliament overwhelming voted against the latest version of the Brexit deal brought by Prime Minister May, bringing into question what the country will do with an end of March deadline.  Emerging markets topped developed markets over the month.  International stocks jumped 7.46% in January, but are down 12.25% over the trailing year.

Bonds continued their recent climb driven by the Fed’s change in stance.  After raising the Fed Funds rate a quarter percent at their December meeting and projecting two interest rate increases in 2019, they changed tack in their January meeting saying they would be flexible with policy moving forward. They also announced they would be keeping more bonds on their balance sheet than they had expected to when they started unwinding the portfolio – a stimulative move for the economy.  The 10-year Treasury yield declined over the month to end at 2.63%.  For the month, credit bonds were the top performing sector and longer-term bonds topped shorter-term bonds.  The broad bond market gained 1.06% in January and is up 2.25% over the trailing twelve months.

Index Performance  Jan.Trl. 1 Yr.
US Stock (Russell 3000) 8.58%-2.26%
Foreign Stock (FTSE AW ex US) 7.46% -12.25%
Total US Bond Mkt. (BarCap Aggregate)  1.06%2.25%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)  0.32%2.44%
Municipal Bonds (BarCap 1-10yr Muni) 0.86%3.11%
Cash (ICE ML 3Month T-Bill) 0.20%1.95%

December Market Commentary

US stocks dropped again in December nearing bear market territory before rebounding partially to end the month.  It was the worst year for US stocks since the financial crisis.  Fears of slowing global growth dominated investors’ minds over the month.  Also weighing on stocks were the future moves of the Fed, the trade squabble with China and US government shutdown.  Economic news is still generally solid, but it has cooled since earlier in the year.  The November jobs report showed 155,000 new hires, slightly below expectations and wage gains held at 3.1%. US retailers posted one of the best holiday shopping seasons in years with sales rising 5.1% over last year and consumer spending increased for the 9th straight month.  However, durable goods orders fell for a third straight month, consumer confidence fell for a second straight month and home price growth was flat.  Oil ended the year at $45.51 a barrel despite an agreement from OPEC members and Russia to cut production by 1.2 million barrels a day.  Oil fell 25% over the year.  In December, US stocks plunged, falling 9.31% and 14.30% for the fourth quarter.  For the year, US stocks were down 5.24%.

Foreign stocks fell over the month on global growth fears, but held up better than US stocks.  China and the US agreed to postpone an increase in tariffs for 90 days to allow for further negotiations to a deal, however the nations still remain far apart. The European Central Bank announced it was ending its bond purchase program, lowered its forecast for growth by 0.1% for 2019 and 2020 and said they would hold on to their bond portfolio for “an extended period of time.” Industrial production in China in November slowed more than expected and retail sales growth fell by the most in over 15 years. French business production contracted for the first time in two and a half years and Germany’s Purchasing Managers Index reached its lowest level in four years.  UK Prime Minister May postponed a vote in parliament of her Brexit agreement and vowed to go back to the negotiating table to work out a deal that might have a chance of passing.  Emerging markets topped developed markets in December and the fourth quarter, however developed markets outpaced for the full year.  International stocks sank 4.48% in December and 11.44% for the quarter.  Over 2018 international stocks declined 13.87%.

Bonds surged in December as investors flocked to safe havens on a substantial increase in concern for global growth.  At the Fed’s December meeting they voted to raise the Fed Funds rate a quarter percent to a range of 2.25% to 2.5%.  They also lowered their growth outlook for 2019 from 2.5% to 2.3%. In comments after the meeting Chairman Powell suggested the Fed would target two interest rate increases in 2019.  The 10-year Treasury yield ended the year at 2.69%, its lowest level since the end of January, down from 3.01% to start the month, but up from 2.40% at the start of 2018.  For the month and quarter, Treasury bonds were the top performing sector and longer-term bonds topped shorter-term bonds.  For the year, Agency, Municipal and International bonds were the top performing sectors and shorter-term bonds topped longer-term bonds.  The broad bond market gained 1.84% in December and 1.64% in the fourth quarter. For the year, bonds were flat edging up 0.01%.


Index Performance  Dec.4QYTD
US Stock (Russell 3000) -9.31%-14.30%-5.24%
Foreign Stock (FTSE AW ex US) -4.48%-11.44%-13.87%
Total US Bond Mkt. (BarCap Aggregate)  1.84%1.64%  0.01%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)  1.12%1.74%  1.53%
Municipal Bonds (BarCap 1-10yr Muni) 0.99%1.61%  1.64%
Cash (ICE ML 3Month T-Bill) 0.18%0.56% 1.87%

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%