Market Commentary – Third Quarter 2019
Q3 2019 Market Commentary
Equities: Equity performance as measured by the S&P 500 (2971 7/1 Open – 2976 9/30 Close) or Russell 2000 (1574 7/1 Open – 1523 9/30 Close) can best be described as side-ways and range bound for the quarter. While this would lead investors to think there was little afoot in the markets, I would argue we are very pleasantly surprised by the price action of the US Market. With rates plummeting in the US Treasury market all year, manufacturing PMIs moving into contraction (Sept.), geo-political risks ratcheting up (Attack on Saudi Oil Facilities) and no progress of note with the US/China Trade issues, you would think the market would be 10-20% off it’s highs, not less than 2% (In the case of the S&P 500). We also have been surprised by the breadth, meaning the S&P 500 is near it’s high even though the largest cap names in the index (Apple, Amazon, Google, etc.) are not. Equity performance around the globe continues to be mixed country by country and region by region. We are current prefer to stay heavily invested in the US while continuing to monitor overseas markets for potential opportunities.
Fixed Income: As was noted above, yield continued fall during the quarter with the 10 yr. US Treasury trading from roughly 2% to below 1.5% during the quarter , further pressuring the Federal Reserve to continue to lower the Fed Funds Rate (25 bps cuts in August and September). With a still inverted yield curve it appears the Federal Reserve may need to cut rates 2 more times in order to again have a positively sloped yield curve (Whereby Short-Term Rates are lower than Long Term Rates). Historically when long term rates move down it has often preceded a slow down or a recession in the economy. As we sit here today, we believe the market continues to price in a slowing in growth and inflation but has yet to price in a recession. Corporate Bond Spreads by virtue of looking at the High Yield Corporate Bond and Senior Bank Loan Index have started to widen a bit in the month of September, but are still well within the current trading range, and far better than the depth of December’s sell-off. By and large, if you owned long term bonds to start the year you’ve garnered fantastic returns, but we would expect bond returns as we move forward to be more muted. We do not like the Risk/Reward of exposure to Corporate Credit at this juncture but would be an opportunistic buyer were we to see another aggressive sell-off akin to Q4 of 2018.
Alternative Investments: As we’ve highlighted with clients, we have opted to add gold to client allocations in the February to May time frame. We’ve been pleased with the recent appreciation of the yellow metal for client accounts but remain concerned that the steep rally in gold of late portends to potential problems in the economy as we move forward. If nothing else, we believe investors are becoming increasingly concerned about new rounds of “Quantitative Easing” by global Central Banks and what affect that may have on currencies. We are a firm believer that the most popular solution to the ever-growing pile of govt. debt around the world will be a monetization of that debt which should result in higher real prices (Inflation). To help our clients, begin to hedge their assets against this risk we have being adding gold and physical real estate via Non-Listed REITs. We like the elevated and tax-efficient monthly cash flows from these investments vs. bonds and believe these assets could generate better total returns for our clients moving forward.
Oct 2019 Q3 - Market Commentary (to be attached)
Securities offered through M.S. Howells & Co. Member FINRA/SIPC. Advisory services offered through Koa Wealth Management. M.S. Howells & Co. is not affiliated with Koa Wealth Management.
Koa Wealth Management
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