3rd Quarter 2019 Review

3rd Quarter 2019 Review

Overview

With political news dominating the headlines, the U.K. set to “Brexit” in October, and tensions rising in Iran, there appears to be no shortage of external risks for investors both domestic and abroad. Nonetheless, low interest rates, unemployment, and strong corporate earnings indicate that the U.S. is still performing well economically, as the bull market marches toward an 11th year of expansion.

U.S. Stock Market

Despite the risks highlighted above, the stock market, as measured by the S&P 500, still remains positive by approximately 20% year to date. More specifically, stock performance for the 3rd quarter was somewhat muted, albeit slightly positive for U.S. market. Domestic stocks rose around 2% for both the S&P 500 and Dow Jones Industrial Average. Smaller stocks, as seen through the Russell 2000 Index, retreated (2.4%) during the period. The healthcare segment remains the biggest lagging sector of the year although these stocks still have posted a year to date gain of almost 5%. This sector will likely continue to see volatility as healthcare remains a focal point for politicians who may legislate price limits ultimately affecting corporate profits.
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2nd Quarter 2019 Review

2nd Quarter 2019 Review

Overview

Concerns over a global economic slowdown depicted in recent economic data moved Central Banks to telegraph future easing of monetary policy. As a result, interest rates continued their decline throughout the 2nd quarter. The lower rates have translated to positive results for the U.S. stock and bond markets. In addition, President Trump and Chinese President Xi’s much anticipated and widely expected but somewhat orchestrated meeting at the G20 resulted in a trade truce. However, without a long-term deal in place, trade policy and posturing will undoubtedly continue to cause market volatility.

U.S. Stock Market

Lower interest rates and an easing monetary policy is supportive of higher equity prices. Accordingly, we currently have the S&P 500 near its all-time high. Despite the selloff in May, the bulls roared back in June and large cap stocks produced a 4.3% gain for the quarter. The S&P 500 has seen a total return of 18.54% year to date, marking its largest first half gain since 1997. Nasdaq Composite Index returned 7.51% but was out paced by the S&P Midcap 400 which returned 7.64%. The US Broad market index returned just shy of 7%.
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First Quarter 2019 Review

First Quarter 2019 Review

Overview

In the first quarter, the bull market celebrated its 10 year anniversary since bottoming out on March 6, 2009. Ten years later, the S&P 500 sits above 2,800, a rise of 2,133 points from the 667 crater seen during the financial crisis. While the 4th quarter of 2018 was tumultuous, it now appears that it may have been a good buying opportunity as stocks shrugged off slower growth concerns to come within around 3% of their all-time high. Bond investors were also rewarded in Q1 with a decline in interest rates boosting their prices. With both stocks and bonds performing well, investors that had the discipline to ride out the 4th quarter storm were rewarded handsomely for accepting portfolio risk.
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2018: Year in Review

2018: Year in Review

Markets in 2018 turned out to be a roller coaster ride of ups and downs, but ultimately finished on a very sour note after a horrible 4th quarter. We began 2018 with optimism, having just come off a tremendous year in 2017 which saw 20%+ equity returns. Many investors were hoping the Tax Cut & Jobs Act of 2017 would continue the stock market rally for another year. January of 2018 appeared to do just that as the S&P 500 gained almost 6% for the month. The rise was short lived, however, and the market declined just under 12% over the next two months before bottoming near the end of March. From there, the stock market was either flat or up for the next six months and the S&P 500 ended September 30 with a year to date gain of 10%.
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Fourth Quarter 2018 Review

Fourth Quarter 2018 Review

Overview

In the 4th quarter a second correction for 2018 was experienced as stock market investor concerns grew over whether the U.S. economy reached its peak earnings growth potential. Additionally, continued trade negotiations and uncertainty regarding the Federal Reserve’s monetary policy led to a tumultuous end to 2018. While investors saw some relief in the last few trading sessions of the year, Christmas Eve’s sharp decline put the S&P 500 within a few points of what would be considered a bear market (that is a 20% decline in the S&P 500 from its peak).
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Third Quarter 2018 Review

Third Quarter 2018 Review

Market Overview

We continue to see back and forth trade posturing between the United States and foreign trading partners and expect this to continue throughout the remainder of 2018. With that being said, the U.S. and Canada reached a deal after a lengthy negotiation. The new “United States-Mexico-Canada Agreement” (USMCA) is a reworking of NAFTA and hopes to bring more jobs into the U.S. Despite this trade uncertainty in quarter 3, the American economy advanced. In the 3rd quarter of 2018, U.S. stocks once again performed well seeing momentum from U.S. growth and strong earnings reports. The trade concerns and other political uncertainty has continued to put pressure on international markets. Emerging market stocks slid slightly while Europe continues to struggle as the United Kingdom’s negotiations to “Brexit” from the European Union leads to continued uncertainty for the region. Fixed income markets remain a challenging place to invest as interest rates continue to rise.
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Second Quarter 2018 Review

Second Quarter 2018 Review

Market Overview

The quarter was marked by a continued rally in the U.S. Dollar sparked by strong U.S. growth and economic data, much to the detriment of emerging market stocks and commodities (with oil being the only exception).  The quarter was roiled by tariff posturing, most notably between the United States and China.  Although President Trump softened his trade stance in recent days, the projected tariffs are still due to take effect as soon as July 6th.  Needless to say there is still a fair amount of angst and a high level of uncertainty associated with the lack of resolution, even at this late date.
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First Quarter 2018 Review

First Quarter 2018 Review

Market Overview

The overwhelming story of the 1st quarter of 2018 was the return of volatility to our financial markets. In the past quarter, investors saw the S&P 500 experience 6 trading days of plus or minus 2% moves; something that did not occur during a single trading day in 2017. The stock market in 2018 is proving to be more sensitive to political posturing, threats of a trade war, rising interest rates, and inflationary fears. This volatility, however, is far from abnormal with a 12% decline at some point during each year being the average. Lack of volatility during 2017 spoiled investors.

CRA Financial First Quarter 2018 Review

Equity Markets

The quarter started out similar to last year, with the S&P 500 advancing 5.62% in January. In contrast, February and March proved to be a bumpy ride with the stock market retreating 3.89% and 2.69% respectively. The U.S. stock market saw a 1.22% decline compared with a 2.38% decline in developed international equities where the potential risk of a trade war is causing economic uncertainty in a similar fashion. International emerging market equities continued to be a bright spot for investment illustrating a 0.91% return for the first quarter due to improving economic conditions and earnings growth.

International Trade and the Markets

With the announcement of steel and aluminum tariffs and the more recent tariffs of up to $60 billion on Chinese imports, there is the potential for an increased risk of a trade war. A trade war would mean that tariffs are raised steeply and broadly across a range of products and potentially across multiple countries. A trade war among major countries hasn’t occurred in over 90 years but the results have been very bad for economies in the past. Most research and analysis indicates that the current situation would not be expected to deteriorate to this level; however, renegotiating existing trade agreements will have an effect on different businesses/sectors of the economy. Trade announcements from the current administration will likely continue to create volatility in the financial markets, most likely in the short-term.

Tech Stock Challenges

The very large and news grabbing FANG stocks (Facebook, Amazon, Netflix, Google) experienced challenges during the past quarter. Facebook, Twitter, and Alphabet (Google) in particular have recently found themselves in regulators’ sights due to concerns that privacy laws may have been violated. This could lead to more regulatory oversight causing an increase in operating costs. While the recent volatility in these stocks correlates somewhat to the rest of the NASDAQ, the NASDAQ as a whole actually still posted a positive gain for the quarter of 2.32%. The 7.36% gain of the NASDAQ in January perhaps was the market overbuying these stocks as they were 2017 winners.

Bond and Credit Markets

In March the Federal Reserve raised its benchmark 25 basis points to the range of 1.5% to 1.75%, marking the sixth time since the financial crisis that it has raised rates. The Fed also reiterated its forecast of three hikes for this year, meaning it expects two more for 2018. Given this backdrop of steadily increasing rates, fixed income markets were challenged during the first quarter. Both U.S. fixed income and global high yield were down 1.5% and 0.4% respectively. Municipal bonds also saw a 1.1% decline. In light of higher volatility, cash outperformed most other assets classes, returning a meager 0.3%.

The 10-year U.S. Treasury ended the quarter with a yield of 2.74%. The yield curve remains relatively flat.

Perspective for the rest of 2018

Looking to the rest of 2018, it is expected that market volatility will remain as it is the norm for stock markets. With that being said, analysts expect corporate earnings to continue to grow through the rest of 2018. Traditional stock market fundamentals remain supportive of an ongoing bull market and, in fact, the Index of Leading Economic Indicators rose again in March, continuing its robust upward trend. While sticking with an investment in stocks is more difficult when they aren’t moving straight up, the long- term return that these investments provide is often needed for investors to reach their financial goals. At CRA, we will continue to monitor our markets and portfolios carefully and thank you for your continued relationship with our firm.

Respectfully submitted,
CRA Financial, L.L.C.

2017 – The Year in Review

2017 – The Year in Review

2017 Year in Review Early Predictions

Heading into 2017, many analysts were predicting a modest year for investors. Fresh off the end of 2016 where stocks rallied strong in the fourth quarter to finish up almost 12% (S&P 500) for the year, both Credit Suisse and Goldman Sachs were predicting an S&P 500 return for 2018 of less than 3%. Further, many analysts were also predicting a rough ride for the bond market, where it was widely believed that rising interest rates would cause most bond returns to be flat or negative for the year. The S&P 500 posted a total return of 21.31% for 2018, its best year since 2013. And, although the Fed (FOMC committee) raised short-term interest rates three times in 2017, the long end of the interest rate yield curve (as indicated by the 10 Year US Treasury Rate) actually declined slightly during 2018, starting the year at 2.45% and finishing 2018 at 2.40%. The US Bloomberg Barclays Aggregate Bond Index finished 2017 with a respectable 3.54% return. If the last two years have taught us anything, it is that forecasting elections or market returns is a fool’s errand.
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Forth Quarter 2017 Overview

Forth Quarter 2017 Overview

Market Overview

Amidst a backdrop of unusually low volatility, United States and a broad swath of world equity markets rose sharply during 2017, based upon the expansion of 45 separate global
economies. The US broad market advanced 20.52% for the year, 6.2% coming during the final quarter. Developed international and emerging international markets climbed 25% and 37% respectively during 2017, while posting end of quarter gains of 4.23% and 7.44% respectively.
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