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3rd Quarter Market Update - 2018


Alright, another quarter is over and it is time for your quarterly update.  Let’s look at some of the highlights.

  • Actually, this one is right before the quarter end as I am starting this on Sept 28th.  Although DC is pretty wild right now, the market has been pretty calm.  The S&P 500 has gone 66 straight days without a move up or down of more than 1%.  Talk about lack of volatility.
  • The Fed raised rates for the third time this year and it is the eighth increase in this current cycle. Rates are now pretty much in line with inflation and we have not had positive real rates in a decade.  They are also predicting one more increase this year, three next year, one in 2020 and none in 2021.
  • While the increase in rates may bring some bad news when it comes to debt repayment, it does mean the economy continues to improve.
  • Large Cap Growth (think tech) continues to be the leader this year.  Up 17.1% YTD with more than half of that coming this last quarter at 9.2%. Mid Cap Value has been the dog this year with growth of only 3.1%, while Small Cap Value logged gains of 1.6% this quarter.
  • Since the market lows in March of 2009, Small Cap Growth is up over 500% while Large Cap Growth is now in second place with gains of just under 500%.  Large Cap Value is the “loser” here with gains of only 372%. The S&P500 index is up 426% since the lows.
  • The Yield Curve says the odds of a recession a year from now are at 14.6%.
  • The current economic expansion is the second longest on record at 111 months.  If we continue this trend we will break the record a year from now.
  • If anyone ever questions whether consumption is really 2/3 of US GDP, it measured in at 68% for the 2nd quarter this year.
  • While housing starts creeps up (just to its average), light vehicle sales, days of sales for manufacturing inventories, and real capital goods orders are all trending down slightly. 
  • I’ll continue to harp on it – if we want GDP to keep growing, we need more people!  We are at 30-year lows with native borns being pretty much nonexistent.  We need more immigrants to help drive GDP. 
  • Unemployment is under 4%, while wages are finally starting to climb at 2.8% for August. Wages are still well below their 50-year average of 4%.
  • Although it is not part of the Core CPI (consumer price index) measurement, Energy CPI (yes, it is still measured) was up an eye-opening 10.3% in August. Not surprisingly, oil has been making a recovery. 
  • Not sure how to share this data, but since 1947 the returns for the S&P500 rolling six-month periods saw the average return of a Republican controlled government of 6.3%, 4.3% for Democrat controlled, and 3.9% for split government.  Now, it is important to note the percentages of time for these three periods were 11%, 28% and 61%. Also, GDP was at 2.8% for Republicans, 4.4% for Democrats, and 2.8% for split during the same periods and time percentages. 
  • Most bonds (fixed income) have been negative this year.  The exceptions are the 2-year, convertibles, floating rate and high-yield.  The respective returns are 0.12%, 8.35%, 2.06% and 2.57% YTD.
  • Finally, YTD returns for international developed and emerging markets have been negative for the year at -1.0% and -7.4% respectively. 
  • Actually, I lied.  A few more notes on longevity.  If you make it to 65, the odds to make it to 80 are 63% for men, 73% for women, and 90% that one person of a couple who made it to 65. To reach age 90, the odds are 22%, 33% and 48% respectively.