Market Highlights Q3 2018
One lens we use to assess our economic and financial wellbeing is market prices for US stocks and foreign shares of corporations. From that perspective, Q3 was quite favorable for investors. US stocks and global stock indexes rose on strong economic indicators and corporate earnings. As you can see below, each of the US indexes posted solid gains, and global stocks overcame declines seen in the first half of the year. Prices for 10-year Treasuries dropped by the end of the quarter, pushing yields higher by 20 bps.
If your portfolio lagged compared to these impressive gains, don’t be alarmed—and don’t worry. A balanced portfolio is designed to avert risk by including US bonds which saw negative returns in the quarter due to the inverse relationship to rising interest rates. A balanced portfolio further includes global stocks whose returns were lower than the US market. Balancing risk and reward is the goal, and your portfolio should always reflect that reality.
That said, current economic indicators point to continued growth. Jobs are up 196,000/month for the past year, and hourly earnings are up 2.9%. Interest rates are the highest they’ve been since April 2008 which signals a strong economy, and GDP growth is at 4.2%. Home sales are stable, consumer spending remains strong, and consumer confidence is at an 18-year high.
One of the few distractors from growth has been turmoil in international trade. The trade battle between the US and China has dampened Chinese stocks, though higher numbers at the end of Q3 hint at decreasing concern about the real impact of the trade war. Brexit—and its potential impact on commerce in the UK and Europe—remains uncertain. On the plus side, a revamped NAFTA (USMCA) agreement should ease tensions between the US and our trading partners in Mexico and Canada; Japanese stocks are approaching highs not seen since the early 1990s; and Germany, France, and the UK all saw gains in their respective stock benchmarks.
Will growth approach 4.0% in the last quarter of the year? Are security prices “too high”? Is a recession inevitable? We know that today the US economy is strong and security prices are exuberant. As always, the prudent investor stays invested, stays the course, and sticks to the basics with a balanced, risk-appropriate approach to growing and protecting your wealth through all market cycles.