ARTICLES IN 2018

DATE: October 1, 2018
FROM: David G. Dietze, JD, CFA, CFP  Founder and President
 

I. Performance Update

Despite fears of rising interest rates, the US increasing tariffs to $200 billion of Chinese goods, and the extreme weakness in the Turkish, Argentinian, and South African currencies, domestic stocks had one of their strongest quarters since 2013. More than 70% of the companies in the S&P 500 surpassed Wall Street analyst earnings expectations yet again, even though those earnings expectations were for 20% year-over-year growth! 
 

   MARKET DATA

09/30/2017 to 09/30/2018

Third

Quarter

2018

Year to

Date

2018

S&P 500 (dividends reinvested)

17.90%

7.71%

10.56%

NASDAQ (dividends reinvested)

25.17%

7.41%

17.48%

60/40 S&P 500 / TX-EXEMPT SECURITIES BLEND

10.69%

4.52%

6.16%

DOW JONES INDUSTRIALS (dividends reinvested)

20.64%

9.58%

8.77%

INTERNATIONAL STOCKS (MSCI EAFE IX ID)

2.69%

1.32%

-1.42%

TAXABLE BONDS (Barclay’s 1-3 Yr Gov’t/Credit)

0.19%

0.33%

0.41%

TAX-EXEMPT SECURITIES (Barclay’s Muni Index)

0.33%

-0.15%

-0.40%

 
The strong economy, propelled by major cuts in corporate tax rates, propelled all three major US stock indices to end the quarter within a percentage point of their all-time highs.  Investors suspended concerns that a contentious midterm election cycle could halt the current pro-growth agenda.
 
Despite tech stocks being the favorite in the first half of the year, investors clamored for health care in Q3, driving the sector to a market leading 14% gain, including a 15% hike in shares of Allergan (AGN).  A number of tech favorites slumped in the quarter, as the specter of increased regulation, privacy concerns, monopolistic practices, and in the case of Facebook (FB) and Netflix (NFLX), a slowdown in demand, weighed.  FB dropped 15.4%; Netflix fell 4.4%.
 
The worst performers in Q3 were emerging market equities, long dated bonds, and gold.  The developing world continued to be buffeted by financial upheaval in Argentina and Turkey; Dollar strength made their debts more onerous, while trade tensions weighed.   Long dated bonds continued to act poorly in the face of a strong economy and the threat of higher interest rates.  Gold is in its worst down trend since 1989, amid Dollar strength and strong equity markets.
 
International stocks began to stabilize despite being down for the year, with funds invested there up 1.6% in Q3 although down 2.5% year to date. Despite the US dollar remaining strong, trade wars between the US and China escalating, and economic woes in Turkey sparking fears of potential contagion, investors with a higher tolerance for risk and a longer investment time horizon should use this opportunity to increase exposure to foreign companies.
 
The US 10-year yield marched higher for the fifth quarter in a row, a feat not seen since 2013.  Nevertheless, when including income, the high quality Barclays Aggregate index was slightly higher for the quarter (+0.02%) despite still being negative for the year (-1.6%).  More credit challenged bonds made headway in the quarter; funds investing in junk bonds advanced +2%. US debt looks very attractive when compared to other sovereign debt, such as the German Bund yielding 0.44%, or the Japanese 10 year bond yielding 0.13%.
                    

PREVAILING YIELDS AS OF:

FIXED INCOME ASSET

9/30/17

12/31/17

3/31/18

6/30/18

9/30/18

US Government 10 Yr. Note

2.33%

2.40%

2.79%

2.85%

3.06%

5-Year Certificate of Deposit

0.99%

1.00%

1.67%

1.74%

1.89%

Money Market

0.71%

0.95%

1.32%

1.57%

1.75%

 

II.  Looking Forward

The markets have entered the longest bull market in the history. However, we remain cautiously bullish thanks to continued strong earnings, relatively low interest rates and inflation, and in general, reasonable valuations on stocks.

   

Article Index

How to Invest in Bonds Amid Rising Interest Rates! by David Dietze, 10.19.18.

Opportunities Following Dow's Wild Ride by David Dietze, 10.15.18.

Eight Annuity Pitfalls by David Dietze, 10.1.18.

How to Pay for Long Term Care-And How Not To by Claire Toth, 10.1.18.

The Long View: Stocks for the Next 20 Years! by John Petrides, 10.1.18.

Retirement Income Strategies by Donna St.Amant, 10.1.18.

ESG Investing by Elaine Phipps, 10.1.18.

Bust that Trust? - Claire Toth, 7.19.18.

Mid-Year Market Outlook by David Dietze, 7.5.18.

Nonportfolio Assets and Your Asset Allocation Plan? by Donna St.Amant, 7.2.18.

Picking up the Pieces - The Benefits of Account Consolidation by Elaine Phipps, 7.2.18.

How to Commit Elder Financial Abuse - and How to Head it Off by Claire Toth, 7.2.18.

Trade Wars: The Saga Continues! by John Petrides, 7.2.18.

Ten Stock Picks for 2018's Back Half by David Dietze, 6.28.18.

10 Key Takeaways From The Berkshire Hathaway Annual Meeting by David Dietze, 5.10.18.

When You Come to the Fork in the Road, Take It! by John Petrides, 5.8.18.

Cybersecurity Starts with You by Claire E. Toth, 4.6.18.

Maximizing Your Portfolio's Returns - Beware the Taxman by Elaine Phipps, 4.6.18.

Fear of Rising Rates? Remember The Reason You Own Bonds by Donna St.Amant, 4.6.18.

Stocks Can Rise in a Rising Interest Rate Environment by John Petrides, 3.12.18.

Profit from Recent Volatility with Stock Market Bargains by David G. Dietze, 3.6.18.

Making Sense of the Market Volatility by David Dietze & John Petrides, 2.12.18.

Doing Well While Doing Good by Claire E. Toth, 2.5.18.

Tax Reform: A Bullish Development  by David Dietze, 1.17.18.

Ten Stock Ideas for 2018 by John Petrides, 1.9.18.

Bullish on 2018? Consider Three Key Issues by David Dietze, 1.5.18.

A Bit About Bitcoin by Claire E. Toth, 1.5.18.

Look Out for the Robo-Advisor by Donna St.Amant, 1.5.18.  

Financially Savvy Charitable Giving: Donor- Advised Funds by Elaine Phipps, 1.5.18.

Is FAANG Long in the Tooth? by John Petrides, 1.5.18.

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