Category: Monthly Commentary

Monthly Commentary

December Market Commentary

US stocks finished the year strong, reaching new record highs and posting the best year since 2013 on positive US/China trade developments and encouraging economic news.  President Trump announced he would sign a phase one trade deal with China in mid-January.  The deal will reduce existing tariffs on Chinese goods and canceled new tariffs that would have taken effect during the month, while China will increase purchases of US farm goods by $32 billion, increase intellectual property protection, open the Chinese financial services market and prevent currency manipulation.  The US will cut the tariff rate on roughly $120 billion of Chinese goods from 15% to 7.5%.  In addition, the President and Congress agreed on a trade deal between the US, Canada, and Mexico setting up passage in early 2020.  Economic news continued to be solid in December.  Hiring in November blew past expectations with 266,000 new hires and previous months’ hires were revised up by 41,000. The unemployment rate also declined to 3.5% and wage growth edged up to 3.1%.  Retail spending from November 1st through Christmas Eve rose 3.4% from last year. Business activity reached a five-month high and consumer sentiment rose in December.  On the downside, in November US manufacturing activity moved further into contraction territory.  In December, US stocks rose 2.89% and surged 9.10% over the fourth quarter.  For the year, US stocks posted a 31.02% gain.

Foreign stocks climbed over the month on US/China trade talks and more clarity around Brexit to post a strong bounce-back a year from 2018.   In addition to reaching a phase one deal with the US, China said it would cut tariffs as of January 1st with all trading partners on a range of goods. Manufacturing and consumer spending both improved in China in November as well. Japan approved a $120 billion stimulus plan, its most significant stimulus measure in over three years.  In the eurozone, manufacturing activity contracted less than expected in November.  The European Central Bank held its benchmark rate steady after new chief Lagarde’s first meeting as she detected “some initial signs of stabilization” in eurozone growth.  Prime Minister Johnson’s snap election in Britain resulted in a solid majority for his party in Parliament clearing the way for the UK to leave the EU on January 31st. OPEC agreed to cut crude oil output by roughly 40% next year as it pushed for higher prices.  Emerging markets topped developed markets for the month and fourth quarter but trailed developed markets for the year.  Foreign stocks were up 4.35% in December and climbed 9.10% in the fourth quarter.  Over 2019 foreign stocks surged 22.20%.

Bonds edged up slightly to end the year as interest rates rebounded from their lows for the year. However, over 2019 interest rates dropped significantly driven by the Fed’s policy reversal.  After raising the Fed Funds rate four times in 2018, the Fed switched gears and made three quarter percent interest rate cuts in 2019 to cushion the US economy from slowing global growth.  At their last meeting of the year, the Fed announced that they were holding rates steady for the time being.  The rate-setting body currently expects to leave the Fed Funds rate unchanged in 2020.  The 10-year Treasury yield ended the year at 1.92%, up from 1.78% to start the month, but down substantially from the 2.69% where it started the year.  For the month and quarter, shorter-term bonds generally outperformed longer-term bonds, while longer-term bonds outpaced shorter-term bonds over 2019. Credit and Muni bonds were the top-performing sectors for the month and fourth quarter, while credit bonds were the top performer for the year to date.  The US bond market edged up 0.13% in December and 0.37% over the fourth quarter.  For the year, bonds gained 6.80%.


Index Performance  Dec.4QYTD
US Stock (Russell 3000)2.89%9.10%31.02%
Foreign Stock (FTSE AW ex US)4.35%9.10%22.20%
US Bond Mkt. (BarCap Int. Gov/Credit)0.13%0.37%6.80%
Municipal Bonds (BarCap 1-10yr Muni)0.30%0.86%5.63%
Cash (ICE ML 3Month T-Bill)0.14%0.44%2.21%


November Market Commentary

US stocks continued to reach new record highs in November aided by positive economic news, strong corporate earnings, and optimism over the direction of US/China trade talks. With nearly all S&P 500 firms reporting earnings for the third quarter, 75% of firms have reported earnings that beat expectations and earnings overall declined 0.4%, outpacing the 4.6% expected. Economic news remained generally positive in November. Hiring in October topped expectations with 128,000 new hires, despite the GM strike, and August and September hiring was revised up. The unemployment rate ticked up to 3.6% from 3.5% as more individuals joined the workforce. Retail sales grew 0.3%, and durable goods orders rose more than expected in October. US consumer sentiment rose, and business activity reached a reading at a fourth month high in November. Third-quarter GDP was revised up to 2.1% from 1.9%. In November, US stocks surged 3.80% taking the year to date return to 27.34%.

Foreign stocks rose over the month on encouraging economic and trade news. Economic growth in the European Union edged up slightly in the third quarter to 0.9% from 0.8%. Germany edged up as well, growing 0.3% in the third quarter. Japan, however, slowed significantly to 0.2% from 1.8% in the second quarter. China’s Commerce Ministry issued a statement saying the US and China trade negotiators “reached a consensus on properly solving related issues,” upbeat language that progress was being made in trade talks. A measure of Chinese factory activity unexpectedly expanded in November after six months of contraction. Emerging markets trailed developed markets for the month and year to date. Foreign stocks rose 0.93% in November and have climbed 17.10% for the year to date.

Bonds edged down over the month as interest rates rose slightly. Investors grew more optimistic about the global economy and the direction of trade talks and moved away from safe-haven assets. In minutes from the Fed’s October meeting, they offered few clues about their next move focusing more on a wait and see approach as they evaluated global growth and trade and their impact on the US. In testimony on Capitol Hill, Fed Chief Powell said he didn’t see any immediate need to adjust interest rate policy but was open to reassessing with new data. The 10-year Treasury yield rose slightly over the month to finish at 1.78%, up from 1.69% to start the month. For the month, generally, shorter-term bonds outpaced longer-term bonds and credit and muni bonds were the top-performing sectors. The US bond market ticked down 0.15% in November but is up 6.67% for the year to date.


Index Performance  Nov.YTDTrl. 1 Yr.
US Stock (Russell 3000)3.80%27.34%15.49%
Foreign Stock (FTSE AW ex-US)0.93%17.10%11.85%
US Bond Mkt. (BarCap Int. Gov/Credit)-0.15%6.67%8.09%
Municipal Bonds (BarCap 1-10yr Muni)0.23%5.31%6.35%
Cash (ICE ML 3Month T-Bill)0.12%2.13%2.32%


October Market Commentary

US stocks touched new record highs in October driven by positive trade news, better than expected corporate earnings and encouraging economic news.  The US and China held trade talks in Washington during the month and President Trump announced the US and China had reached a “Phase One deal” on trade.  The US agreed to not implement tariffs set to go into effect in October and China will increase its purchases of US agricultural goods.  While earnings are set to decline for a third straight quarter, 75% of the 342 S&P 500 companies that have reported earnings to date have beaten expectations.  Economic news reflected a resilient US economy. Employers added 136,000 employees in September, slightly below expectations, but August and July hiring numbers were revised higher. The unemployment rate reached a half-century low of 3.5%.  US consumer sentiment rose in early October and US economic growth rose 1.9% in the third quarter, a slightly slower pace than the second quarter, but better than the 1.6% expected by economists.  On the downside, manufacturing contracted for a second straight month, auto sales fell 1.4% over the first nine months of the year and retail sales fell 0.3% for the first monthly decline since February.  In October, US stocks climbed 2.15% bringing the year to date performance to 22.68%.

Foreign stocks were again the top-performing asset class in October driven by supportive central banks and hopes over US/China trade discussions.  Purchasing manager surveys pointed to a continued slowdown in manufacturing activity in Europe and Asia. Eurozone investor confidence fell to a six-year low.  After the stimulus plans outlined at their September meeting, the European Central Bank elected to not make any policy changes at its October meeting.  However, three developed and nine emerging market countries central banks cut interest rates during the month.   China’s third-quarter GDP growth slowed to 6%, a 26 year low.  It’s at a low level of the range targeted by the Chinese government.  Negotiators from the UK and EU were able to reach a deal on the UK’s exit from the country bloc, however, the agreement has yet to pass Parliament.  As a result, EU leaders agreed to a three-month extension of the Brexit deadline to 1/31/20.  Emerging markets outpaced developed markets for the month, but trail over 2019.  Foreign stocks rose 3.59% in October and have surged 16.03% for the year to date.

Bonds gained over the month as interest rates held steady. Minutes from the Fed’s September meeting showed officials became increasingly concerned that slowing global growth could more significantly slow US hiring and economic activity.  They cited muted inflation, trade policy uncertainty and weak global growth for support on cutting their benchmark interest rate at that meeting.  At the Fed’s October meeting they elected to cut the Fed Funds Rate by 0.25% for the third time in as many meetings.  The Fed now targets a range of 1.5%-1.75% for its benchmark interest rate.  They also said that they would not reduce the rate further unless there was a clear deterioration of the economy.  The 10-year Treasury yield rose and then declined over the month to finish flat at 1.69%.  For the month, generally, shorter-term bonds outpaced longer-term bonds and credit bonds were the top-performing sectors.  The broad bond market rose 0.30% in October and is up 8.85% for the year to date.


Index Performance  Oct.YTDTrl. 1 Yr.
US Stock (Russell 3000)2.15%22.68%13.49%
Foreign Stock (FTSE AW ex-US)3.59%16.03%11.88%
Total US Bond Mkt. (BarCap Aggregate)0.30%8.85%11.51%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)0.32%4.21%5.89%
Municipal Bonds (BarCap 1-10 Yr Muni)0.32%5.07%7.04%
Cash (ICE ML 3 Month T-Bill)0.19%2.01%2.40%


September Market Commentary

US stocks rebounded in September driven by some improvement in US/China trade discussions and support from the Fed.  The US and China agreed to hold trade talks in Washington in October, reigniting hopes for a deal.  Trump announced the US would delay by two weeks tariffs set to begin 10/1/19 on $250 billion of Chinese imports and China said it will exempt certain agricultural products from the US from tariffs. Economic news showed a generally cooling economy.  Employers added 130,000 employees in August, below expectations and June and July hiring numbers were revised down.  The unemployment rate remained at 3.7% and wage growth held steady at 3.2%.  Manufacturing contracted for the first time in three years, small business confidence fell to its lowest level since 2012, consumer confidence fell more than expected in September and consumer spending slowed more than expected in August.  On the positive side, existing homes sales rose 1.3% in August, much higher than expected, and posted the first year over year gain in 17 months.  In September, US stocks rose 1.76% bringing the third-quarter performance to 1.16%.  For the year to date, US stocks have surged 20.09%.

Foreign stocks were the top-performing asset class for the month driven by supportive central banks and hopes over US/China trade discussions.  Economic news continued to be weak globally with contractions in manufacturing in Japan and Europe.  As a result, the European Central Bank cut its benchmark interest rate by 0.1% to -0.5% and launched a new bond buying package of $22 billion a month of eurozone debt that is expected to “run for as long as necessary.”  It’s the largest simulative move the central bank has made in three and a half years. In China, a manufacturing survey reached a five-month high, but concerns over the economy drove the central bank to inject the equivalent of $126 billion into the banking system in hopes of spurring the economy.  Negotiations between the European Union (EU) and Britain over Britain’s exit from the country bloc remain ongoing with a deadline of the end of October.  Britain’s Parliament approved a measure to block Britain from leaving the EU without an agreement, but currently, many diplomats see a no deal exit from the EU as the most likely scenario.  Saudi Arabia oil production facilities were attacked driving up the price of oil, but after it became clear they would be able to return to normal production levels quickly, oil fell and ended the month flat.  Emerging markets trailed developed markets for the month, quarter and year to date.  Foreign stocks rose 2.67% in September but were down 1.51% for the third quarter.  For the year to date, foreign stocks have climbed 12.01%.

Bonds ticked down over the month as economic concerns eased from their August levels.  The Fed voted to cut its benchmark interest rate to a range from 1.75% to 2.0% at their September meeting and comments made by Chairmen Powell left open the possibility of additional rate cuts.  The fed cited cushioning the US economy from a global economic slowdown and the US/China trade war.  The 10-year Treasury yield rose over the month to 1.68% after starting the month at 1.50%, however, it is down from 2.00% at the start of the quarter.  For the month, credit bonds were the top-performing sector and shorter-term bonds outpaced longer-term bonds.  For the quarter it was the reverse with Treasury bonds and longer-term bonds the top performers.  The broad bond market fell 0.53% in September but was up 0.75% for the third quarter.  Bonds have gained 8.52% for the year to date.


Index Performance  Sept.3QYTDTrl. 1 Yr.
US Stock (Russell 3000)1.76%1.16%20.09%2.92%
Foreign Stock (FTSE AW ex US)2.67%-1.51%12.01%-0.81%
Total US Bond Mkt. (BarCap Aggregate)-0.53%2.27%8.52%10.30%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)-0.25%0.77%3.88%5.69%
Municipal Bonds (BarCap 1-10yr Muni)-0.76%0.81%4.73%6.42%
Cash (ICE ML 3Month T-Bill)0.17%0.53%1.76%2.33%


August Market Commentary

US stocks had a volatile month in August driven by amplified trade and recession fears.  After a lack of progress on trade negotiations, President Trump announced a new 10% tariff starting September 1st on roughly $300 billion worth of Chinese imports that had yet to be taxed.  Trump then delayed and removed some tariffs set to hit $156 billion of Chinese goods, moving them back to December 15th.  Finally, at the end of the month, the President said he would raise the tariff rate on existing and planned tariffs by 5 percentage points.  The tariffs already in place on $250 billion of Chinese goods will increase to 30% on October 1st, and tariffs planned for September 1st and December 15th on an additional $300 billion in goods will increase to 15%.  With nearly all S&P 500 companies reporting, 74% topped earnings expectations and 57% beat revenue expectations for the second quarter. Economic news showed the economy continues to grow but has cooled from earlier in the expansion.  There were 164,000 new hires in July, in line with expectations and the unemployment rate remained at 3.7%.  Retail sales rose 0.7% topping expectations.  Existing home sales rose 2.5% and they posted the first year over year gain in 17 months.  Manufacturing activity declined for the first time since 2009 and revised second-quarter Gross Domestic Product (GDP) showed the economy grew at 2.0%, down from the first reading of 2.1%.  Gold ended the month up 6.5% at $1,519 a troy ounce, moving above $1,500 for the first time in six years.  In August, US stocks fell 2.04%, however for the year to date US stocks are still up 18.02%.

Foreign stocks fell over the month driven by the trade war and weak economic news. In retaliation to US moves, China suspended purchases of US agricultural products and said it would add tariffs of 5% to 10% on $75 billion of US goods starting September 1st. China let the yuan fall below the 7 yuan to dollar level for the first time since 2008, making China’s products relatively less expensive.  The move counteracts some of the impacts of the tariffs applied to their goods.  Economic news out of Europe continued to be mostly disappointing with German industrial production in June much lower than expected, manufacturing activity declining in the eurozone and contraction of GDP in the UK and Germany of 0.2% and 0.1%, respectively.  To combat the weak economy, a European Central Bank (ECB) official said that the ECB will announce stimulus measures in September that will surpass investor expectations.  Central banks in India, New Zealand and Thailand cut their benchmark interest rates more than expected to support their economies and stem weakening growth. UK Prime Minister Johnson moved to extend Parliament’s break in a bid to reduce opposition from lawmakers who want to stop a potential abrupt exit from the European Union (EU). A sudden exit from the EU could create significant trade and governmental disruptions.  Japan posted a 2nd Quarter GDP of 1.8%, far above expectations.  Emerging markets trailed developed markets for the month and year to date.  Foreign stocks declined 2.96% in August, but are up 9.09% for the year to date.

Bonds jumped in August as interest rates sank.  During the month the two-year Treasury yield rose above the yield of the 10-year Treasury, a signal from the bond market that has preceded all recessions over the past 50 years.  Fed minutes from their July meeting showed mixed opinions about the interest rate cut that they made with some favoring a larger cut and others not wanting one at all.  Trade policy was also considered a “persistent headwind.”  At the Fed’s conference in Jackson Hole, Fed Chair Powell spoke about the large disruption to the US economy the trade war is having and stated that the Fed is likely to cut the Fed Funds Rate again soon.  The 10-year Treasury yield plunged over the month falling from 2.02% to end the month at 1.50%.  For the month, government bonds were the top-performing sector and longer-term bonds outpaced shorter-term bonds.  The broad bond market surged 2.59% in August, bringing their year to date return to 9.10%.


Index Performance  AugustYTDTrl. 1 Yr.
US Stock (Russell 3000)-2.04%18.02%1.31%
Foreign Stock (FTSE AW ex US)-2.96%9.09%-2.88%
Total US Bond Mkt. (BarCap Aggregate)2.59%9.10%10.17%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)1.19%4.14%5.65%
Municipal Bonds (BarCap 1-10yr Muni)0.84%5.53%6.70%
Cash (ICE ML 3Month T-Bill)0.19%1.60%2.32%