S&P 500 Stocks
U.S Treasury Bonds
October 4, 2019
"The transient nature of investments requires diversity of thought and a process that adjusts to the changes in the business cycle”. GNL
Sun still shining: Today’s positive jobs report came in as expected with 135,000 new jobs created in September. Except for low gains in small company stocks, a short-term concern, broad equity markets took the news in stride following Thursday’s advance. This is encouraging news for US investors considering several reports of a global slowdown that weakened all equity markets at the beginning of October.
The Institute of Supply Managers index (ISM), an indicator of the strength of the service sector of the US economy, came in this week at 52.6, lower than last month’s number. A number above 50 is considered good. In true contrarian behavior, however, investors considered the weaker number to indicate the Federal Reserve Board will lower interest rates again at their next meeting the end of October. Lower rates are considered good for stocks.
Returns for the S&P 500 over the last twelve months have been zero! The big advance during the first quarter of 2019 only lifted values from the drop in the fourth quarter of 2018. Practically all of this year’s gain in the Dow and the S&P 500 occurred in the first quarter of 2019. Also, since January 30, 2018, the S&P 500 has returned about 3% total (not annual). The good news is the economy is still on track with low unemployment and strong Gross Domestic Product (GDP), a measure of economic strength. Consumer sentiment and consumer spending, which represents about 70% of GDP, remains strong.
Fortunately for moderate and conservative investors, bonds have continued to do well despite a brief rise in interest rates in August through the middle of September, causing bond prices to drop. This caused some angst, but bonds returned to form since that time, thus stabilizing portfolios. High yield credit markets (fixed income) remain strong, a major factor for continued economic growth.
Going forward, we can expect a continuing trade war with China that may not be resolved until the spring. The other issue on clients’ minds is the impeachment inquiry in Congress. Seen by many as a political ploy, investors don’t seem to care. The Nixon impeachment was a real issue that drove equity markets down. The Clinton impeachment caused little to no harm to investors and so far, this one is shaping up the same way.
George N. Luciani CFP®