Quarterly Market Update - October 2019
Another quarter has ended. You may have noticed as the Halloween decorations have been replaced by Christmas decorations in the stores. With the conclusion of another quarter on September 30th, I bring you a quarterly market update. Enjoy some of the highlights below!
- MidCap Growth is leading returns for the year at 25.2% year-to-date (YTD). This is even after being down 0.7% for the most recent quarter. Small Value has the lowest YTD return at 12.8%.
- Since the market low roughly 10.5 years ago, MidCap Growth has the best total returns at 527.4%. Small Value has the lowest growth at 373.3% for the same time period.
- When it comes to sectors, Technology leads YTD returns at 31.4% and HealthCare brings up the rear at 5.6%.
- This economic expansion is the longest of record at 123 months, which is roughly 2.5 times the average of 48 months.
- Year over year change in GDP is 2.3%, which is below the 50-year average of 2.7%.
- Income inequality has spiked the last few years. The top 10% in the US share just over 50% of the pre-tax national income. When it comes to spending as a percentage of income after tax, the top 10% spend 69% while the bottom 10% spends 101%.
- I beat this drum every quarter, but over the last 50 years more than half of the growth in GDP has come from growth in numbers of workers (smaller portion comes from growth in real output per worker). Census projections show the growth in working-age population as being the smallest in 40 years at 0.2%. The native born portion of this measures at 0.01%. We need immigrants to fill in this gap.
- The unemployment rate of 3.5% is well below the 50-year average of 6.2%. Wage growth at 3.5% is also below the 50-year average of 4%, however, it has increased in the last couple of years.
- FYI – Since 1948 the annualized S&P500 price return when unemployment is below 4% is 4.71%. The higher the unemployment rate the higher the returns. Over 8% unemployment is 22.17% returns.
- The differences between unemployment rates of various education levels always catches my eye. Right now, less than high school education unemployment is 4.8% and college or great is 2%. In 2011, these were roughly 16% and 5% respectively. Average annual wages for high school grads is nearly $39,000 and just under $100,000 for advanced degree.
- The Fed’s last updated Probability of US Recession by Treasury Spread was updated on September 4th (not sure what’s taking them so long with the new numbers) and shows a 37.93% chance of a recession in twelve months.
- Everyone always assumes bonds don’t do much of anything. Just a quick reminder that the bond market dwarfs the stock market. Corporate bonds lead returns YTD at 13.2% while Mortgage Backed Securities bring up the rear at 5.6%. A diversified bond portfolio is up almost 9% YTD.
- I go back and forth with some of the bigger investment brains of whether REITs (Real Estate Investment Trusts) are stocks or bonds. Even when I was at Merrill no one could decide which it was. I’ve always considered it a stock. YTD it has returned 28.5%, which leads all major asset classes.
- In case your joints are feeling a little achy as we are in the fall season, if you’ve hit 65 you have a good probability of living longer. Men have a 63% chance to hit age 80 and 23% chance to reach 90. The percentages for 65-year old women are better at 73% and 34%. It continues to increase for married couples with 90% chance one of them will live to 80 and 49% that one makes to age 90. All I know is my wife regularly reminds me “You could go to sleep, never wake up and know one will ever know why.” Nurse humor…I hope!
- And, your regular reminder the “average” investor has enjoyed annual returns of less than 2% the last 20 years. A plain old 60/40 portfolio has averaged growth of 5.2% during the same time period. Your goal is to be average with a boring portfolio like 60/40 versus trying to guess and time the market and ending up as an “average” investor.