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First Quarter Market Thoughts - 2018


  • The S&P500 Forward P/E ended March at 16.4.  This is slightly above the 25-year average of 16.1%.  While the current P/E looks at current Price to Earnings ratio, the Forward is just that – it is looking ahead to predicted Price to Earnings.
  • Interestingly, the majority of the 1-year returns of the S&P500 Forward P/E of 16.4% are positive.
  • Corporate earnings for 4th Quarter of 2017 were the highest when looking at data going back to the beginning of 2002.
  • Growth was the only style to have positive earnings to begin the year.  Small Cap Growth led the way up 2.3% while Large Growth was up 1.4%.  Value and Blend were negative across the board, ranging from -0.1% for Small Blend to -2.8% for Large Value.
  • Consumer Discretionary and Technology were the only positive sectors year-to-date with returns of 3.1% and 3.5% respectively. Telecom was the worst performing sector at -7.5%.
  • As a reminder, despite average intra-year declines of 13.8%, the S&P500 has been positive 29 of last 38 years.
  • When 10-year Treasury yields are below 5%, rising rates have historically been associated with rising stock prices. The current yield is just over 2.7%.
  • The average economic expansion is 47 months, when looking at data back to 1900. We are at 105 months right now, which is nearing the second-longest streak. Oh, because I know you wanted to know, the average recession is 15 months.
  • Projected census numbers make me nervous when it comes to the growth of the working-age labor force. From 2007-16 this population increased .6%.  It is projected to increase at .3% over the next decade, with almost all of it coming from immigrant workers.  Why this is important is because growth in workers is a huge part of the growth of GDP.  Simply, we need more workers, whether local or foreign born.
  • The unemployment rate of 4.1% is well below the 50-year average of 6.2%. Wages are starting to creep up at 2.5%, but this is still significantly lower than the average of 4.2% of the last 50 years.
  • Emerging Market stocks were actually positive for the first quarter.  Who would’ve thought EM stocks, which have typically had higher than average volatility, were a safe haven?
  • I’ve talked before about the power of compounding. Let’s look at what the main asset classes have returned over the last 20 years. Cash = 51%. Fixed Income = 165%. Equities = 301%.
  • The VIX this afternoon (April 2nd) was in the low to mid-20s.  This is roughly half of what it hit in February.
  • Reminder on days like today, and even the past few weeks, to focus on your goals.  When someone asks me what my investment performance has been I never have what they may want as an answer. My portfolios are designed in conjunction with my client’s goals.  My point – why take on more risk than you want and/or need?
  • Worst start to the second quarter ever.  Yeah, I wrote it because I have been hearing it all afternoon and you will probably be hearing it more.  I would be more concerned if the data point were a little larger than the first freakin’ trading day. If one day was a trend, well, the Indians should have been on track to lose every game this season.
  • The software program I use to monitor my clients’ portfolios, WealthGuard, is all still in the green.  WealthGuard monitors on a daily basis the performance of their individual portfolios and no losses have been such as to warrant a Review or an Alert, which is when it turns red.  Well, except for one client’s restricted stock portfolio, but nothing can be done about that.  The thing I really like about WealthGuard is it not only sends updates to me, but also to clients. Talk about using technology to your advantage.
  • Finally, I came across a great quote – “Your portfolio is like a bar of soap.  The more you handle it the smaller it gets.”
  • Oh, final finally – I have to say I even impressed myself with getting this market commentary out the first day of the new quarter.  Please don’t expect such performance in the future as I am not that good😉