Archive for the category: Market Updates

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 4^th 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 4^th quarter storm were rewarded handsomely for accepting portfolio risk.

U.S. Stock Market

Following the December sell-off, the S&P 500 returned 13.6% for the first quarter. This was the best quarterly performance in nearly 10 years with stocks seeing a dramatic and quick rebound from their lows. Additionally, all 11 sectors of the S&P 500 ended in positive territory with technology being the biggest winner, posting a 19.9% gain. Real estate and Industrials also fared well posting gains of 17.5% and 17.2%, respectively. Healthcare was the sector that struggled the most in Q1, however, it still squeezed out a solid 6.6% gain. Smaller stocks, as seen with the Russell 2000 index, outpaced larger S&P 500 stocks advancing 14.6% for the first 3 months of the year.

International Stock Markets

Developed international stocks also climbed for the quarter returning 10.1%. Emerging market stocks returned about the same at 10%. Similar to the U.S., foreign stocks received a lift from declining tensions in the United States’ trade war with China. The European Central Bank also gave a boost to stocks with the announcement that the bank will remain accommodative as long as necessary in an attempt to stifle lower growth expectations.

Despite seeing positive returns for the first quarter, international economies face numerous challenges. The Eurozone in particular continues to struggle with a GDP growth number that could dip below 1% this year. Prime Minister Theresa May continues to struggle to negotiate a Brexit deal with the rest of the E.U. while Italy’s economic numbers show the country is in recession. Slower growth in Europe was highlighted on March 22^nd when Europe’s PMI (Purchasing Managers Index) fell to 51.3 in March from 51.9 in February. A measure of over 50 shows an increase in economic activity for manufacturing and service sectors.

Bond Prices and The Fed

The U.S. Aggregate Bond Index, which tracks an index of investment grade bonds, returned 2.9% for the quarter. This was its best quarterly performance in 3 years. Bond prices benefited from falling interest rates with the 10-year treasury closing with a 2.41% yield, down .27% for the quarter.

On January 4^th, Fed Chairman Jerome Powell announced that they will be taking a flexible approach when it comes to raising rates. Later in the quarter, on March 20^th, they announced targeting the federal funds rate at a range of 2.25% to 2.5% leaving this key rate unchanged. While The Fed previously was looking to continue to raise rates to what they felt would be “normal”, it is now expected that there won’t be any rate hikes for 2019. Moreover, investors, as per the fed funds futures market, believe the next move would actually be a rate cut. While stocks and bonds rallied on the news of lower rates, the economic GDP growth forecast was cut from 2.3% down to 2.1% suggesting that the U.S. economy is expected to slow down.

Towards the end of the quarter, the 3 month treasury yield rose above the yield of the 10-year treasury. Investors typically would expect to receive a higher yield for locking up their money for 10 years versus just 3 months. Additionally, when a yield curve inverts in this manner, it can be an indicator of an upcoming recession. Typically an inversion of the 2-year vs. the 10-year yield is used to define an inverted yield curve. This curve remains very flat but still slightly upward sloping. Additionally, as discussed in our last quarterly commentary, equity prices remain positive typically after the inversion of this yield curve with the average stock market peak occurring 19 months later.

Oil Prices & the U.S. Dollar

Brent crude oil prices advanced roughly 25% in the first quarter marking its largest quarterly rise since 2009. OPECs production cuts tightened the supply allowing oil prices to rise despite economic slowdowns. The energy sector as a whole outperformed the broad market, returning 16.2% for the quarter.

The U.S. dollar remains strong with the British Pound costing just around $1.30 and a Euro only $1.12 at the end of March. The U.S. Dollar Index rose slightly throughout the quarter by just over 1%. America’s stronger currency makes our exports more expensive to other countries and one of the contributing factors to our record $891 billion trade deficit seen in 2018.

Perspective Moving Forward

Investors that remained disciplined and invested were rewarded in the first quarter. With stocks near an all-time high and bonds performing well, many investors will have recouped most of their losses from the 4^th quarter. While U.S. economic indicators still remain positive, weakened economies in the Eurozone can prove to be a drag for multinational companies who should expect a weaker European demand for their products and services. While the first quarter was great for investments, some of this appears due to a recovery and overreaction to the market selloff at the end of 2018. While a potential U.S./China trade deal and low interest rates will be supportive for asset price appreciation, difficulties overseas could be a detractor and create volatility throughout the year. At CRA Financial we remain committed to educating and coaching our clients through changes in the markets and in your personal life. Thank you for your continued trust and confidence in our firm.

Respectfully Submitted
CRA Investment Committee

Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Francis C. Thomas CPA, PFS
Robert T. Martin, CFA, CFP®
Jeff Hilliard, CFP®, CRPC®
Gordon Shearer Jr., CFP®

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 4^th 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%.
Read more

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).
Read more

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.

Equity Markets

Large U.S. companies continued their outperformance as the S&P 500 returned 7.2% for the 3rd quarter. The Dow Jones Industrial Average rose by 9%. Despite these returns, volatility declined resulting in a quarter where the S&P 500 did not have a single trading day where it closed with a 1% move up or down. Small cap stocks trailed larger companies but still posted a 3.2% return for the quarter. International stocks in developed markets declined (0.8%) for the quarter, lagging the United States. As discussed above, emerging markets also retreated with a negative (2%) return for the quarter. Foreign trade will likely remain a focus of the Trump administration into 2019 with further volatility in international markets also likely to continue.

Bond and Credit Markets

On September 26th, for the third time this year, policy makers voted to unanimously raise the federal funds rate 25 basis points to a range of 2.00% to 2.25%. It is expected that the Fed will look to raise rates once more before the end of 2018. While the President negatively reacts to these rate hikes, they are still considered historically low and a sign of a strong economy. Fed Chairman Jerome Powell stated that “this gradual return to normal is helping to sustain this strong economy for the longer run benefit of all Americans.” Most researchers believe that even with continued rate hikes, they are not expected to slow down a resilient economy. From an investment standpoint, these rate hikes pose challenges to bondholders as bond prices decline when interest rates rise. The broad based U.S. Aggregate Bond Index declined slightly by (0.2%). For the year the index is off by (1.6%). Municipal bonds rose 0.3% for the quarter. The yield curve remains very flat with a 38 basis point spread between the 2-year and 30-year U.S. Treasury bond.

Commodities

Commodities declined for the quarter posting the longest losing streak in more than 3 years. The Bloomberg Commodity Index fell (2.5%) amid concerns over the Chinese demand outlook and continued trade friction. Gold posted its 6th straight decline in September while oil and natural gas prices continue to climb. The U.S. Dollar is a significant factor when it comes to commodity prices. The Dollar Index moved higher by 0.41% for the quarter and is now higher by 3.17% for the year.

Perspective For the Rest of the Year

The overwhelming media story for the 4th quarter is likely to be centered on the mid-term elections occurring in November. Democrats are forecast to make gains in the House while Republicans may fare better in Senate races. If Democrats are able to take control of Congress they could look to block President Trump’s policies essentially making him a lame duck president for the remainder of his term. Continued trade tension and this political uncertainty could cause the abnormally low volatility from the 3rd quarter to subside and investors should expect market fluctuation to normalize.

Year-End Tax Planning

At CRA Financial, we look to help our client’s create tax efficiencies where possible. This is done by looking at which mutual funds will be paying out capital gains distributions at the end of the year and also harvesting losses in non-qualified portfolios where appropriate. As always, we are here to help you with any questions. We look forward to continuing to service you and thank you for your trust in our team.

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

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.
Read more

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.

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.

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.
Read more

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.
Read more

Market Overview

Global markets continued their broad advance during the third quarter 2017. Thus far 2017 has been a year where all major asset classes have advanced with international equities leading the field. Could we now be at an inflection point?
Read more