Quarterly Market Update – Q3 2019 By: Gabriel PotterMBA, AIFA® 2019.10.16

Key news stories

The fundamental economic data (earnings, profit margins, unemployment) was steady, healthy, and relatively unchanging throughout the third quarter.  There were a few reported warnings signs, including a slight dip in consumer confidence, but these did not stop the advancing markets much.  The quick dip in August was erased just as quickly in September.  In fact, cyclical and momentum factors have been greatly rewarded while defensive stocks have been relative laggards.  The most worrying fundamental signals on 3Q – particularly the ISM manufacturing pullback – only became available in October, so that information could not have been acted upon in September.

Equities

The trade war directly harms relative equity performance for international stocks, but it is compounded by the US dollar effect - an unintended consequence.  The administration has openly said that they would prefer a weaker US dollar, so that US exports could become more price competitive in the global marketplace.  However, the instigation of the trade war has itself boosted the relative strength of the dollar, since the United States is regarded as a relative safe-haven due the relative immunity given our limited exports.  In other news, large caps clearly outperformed over small cap stocks.  Small Cap growth stocks had a material pullback; given their high valuations (41.1 P/E ratio – the highest on an absolute level and relative to its historical average), this is a potentially rational decision from market investors.     

INDEX

3Q 2019

YTD 2019

US Large Cap Growth - Russell 1000 Growth

1.49

23.30

US Large Cap Value - Russell 1000 Value

1.36

17.81

US Small Cap Growth - Russell 2000 Growth

-4.17

15.34

US Small Cap Value - Russell 2000 Value

-0.57

12.82

Developed International Markets - MSCI EAFE

-1.07

12.80

Emerging Markets - MSCI EM

-4.25

5.89

 

Bonds

The Federal Reserve cut the fed funds rate 50 basis points over the past quarter - the first interest rate cuts since the Great Recession ended.  Cuts in interest rates help long duration bonds the most.  Elsewhere in the world, several developed nation countries have taken very aggressive monetary policies.  About 35% of global government bonds available (about $14 trillion) have negative yields.

INDEX

3Q 2019

YTD 2019

Barclays Capital US Aggregate Bond

2.27

8.52

Barclays Capital US Intermediate Credit

1.70

8.46

Barclays Capital US Government

2.39

7.66

Barclays Capital US Gov’t/Credit Long Duration

6.58

20.93

ICE B. of America/Merrill Lynch High Yield

1.22

11.50

Barclays Capital Global Aggregate – Hedged to USD

2.59

8.75

Barclays Capital Global Aggregate - Unhedged

0.72

6.32

 

Alternatives

Real Estate extends its winning streak.  This highly volatile asset class has seen explosive price appreciation throughout the year.  Violence in the Middle East had only a limited impact on collective commodity prices (due to supply concerns) while the trade skirmish is doing much to dampen soften prices by weakening global demand for raw materials.

INDEX

3Q 2019

YTD 2019

Real Estate - FTSE NAREIT All REITs TR

7.24

27.37

Commodities - Morningstar Long Only Commodity TR

-3.34

6.64

Inflation - Barclays US Treasury TIPS

1.35

7.58

Hedge Fund - Morningstar Broad Hedge Fund TR USD

-0.90

2.58

 

DISCLOSURES & DISCLAIMERS:

The information contained herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed.  Westminster Consulting, LLC reserves the right at any time and without notice to change, amend, or cease publishing the information.  It has been prepared solely for informative purposes.  It is made available on an "as is" basis.  Westminster Consulting, LLC does not make any warranty or representation regarding the information.  Without prior written permission from Westminster Consulting, LLC, it may not be reproduced, in whole or in part, in any form.  The information in this document is confidential and proprietary to Westminster Consulting, LLC including its business units and may be legally privileged. Any unauthorized review, printing, copying, use or distribution of this document by anyone else is prohibited and may be a criminal offense. Indices mentioned are unmanaged and cannot be invested into directly.  Past Performance does not guarantee future results.

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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