Quarterly Newsletter for the 3rd Quarter 2019
The third quarter, despite its ups and downs and the media’s hysteria over recession, finished with most of the indexes showing slight gains. Year to date, as of September 30th, the Dow Jones Industrial Average (DJIA) was up 15.39%, the Standard and Poor 500 (S&P 500) was up 18.74% and the NASDAQ was up 20.56%. Overseas, the MSCI all Country World ex-US Index gained 11.63% and the MSCI Emerging Market Index was up 9.07%. In the fixed income environment, the Barclays 1-3 year US Government/ Credit Index showed gains of 3.42%.
Fixed Income Market (Bonds): As you may recall from our past newsletters, throughout most of 2018 the Fed was increasing interest rates and their commentary indicated they would continue to increase rates throughout 2019. To the contrary, the opposite has happened- the Fed has been lowering rates this year. The Fed is meeting again at the end of October and we believe they will cut rates yet again. Certainly, there is some Fed member dissent as those members believe that, given the strength of our economy, we don’t need a rate cut at this point. We feel, however, that Jerome Powell, Chairman of the Fed, has the votes to support the cut. After that, we expect the Fed to pause as they monitor the economic climate of the US through year end.
US Equity Market (Stocks): As we enter the fourth quarter of 2019, US economic conditions continue to look strong. Consumer confidence is high, unemployment is low, corporate balance sheets are strong, the housing market is positive, and the threats of a recession have dissipated. Corporate earnings reports are coming in relatively positive. Of significance is the fact that there is a lack of negative guidance for future earnings- this has encouraged the market. With interest rates as low as they are, the S&P 500, with a dividend yield of approximately 2.5%, seems to be fairly priced and remains attractive to investors. Finally, more favorable trade news seems to be dominating the markets. Specifically, the trade war tensions with China are easing and there appears to be signs of further progress.
Overseas Markets (Foreign Stocks): The Overseas markets remain somewhat troubled. Their economies continue to struggle and manufacturing seems to be weakening. Of course, BREXIT is still an issue. The improving relationship between the US and China, however, should be a positive.
Conclusion: Our conclusions remain the same as we stated in our last newsletter. US equity (stock) markets will probably continue to be somewhat volatile but we are still positive regarding their future. The holiday spending season is predicted to be strong and this should aid in additional gains into the year end. The Overseas equity (stock) market and the Emerging market will remain neutral to positive and there could be significant growth in this area if/when we get a resolution to the trade wars. The fixed income (bond) environment is still stable with the Feds considering rate cuts, followed by a pause; thus, we are positive about bonds- especially the intermediate bond funds. A small exposure to long term bond funds may be appropriate until interest rates begin to rise.
Permit us to express our sincere appreciation for the opportunity to be of service to you. As always, should you have any questions or wish to discuss the above in more detail, please do not hesitate to contact us.