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MARKET UPDATES

October 10, 2019

Amid heightened volatility, markets turned this way and that in the third quarter, only to end up about where they started. Both the Dow and S&P 500 indexes gained a little more than 1%. Bonds, like stocks, also advanced modestly as the Fed continued to lower interest rates amid a soft economic outlook. Overseas performance was similar, although U.S. investors in foreign markets suffered small losses due to foreign currency denominated investments losing value when translated back into a surging U.S. dollar.

Trump’s trade war with China continued to move markets, but signals from each side about the progress of talks, or lack thereof, were more muted than in Q2. In any event, the impact of the trade battle has moved from the theoretical to the empirical – with the impact being felt globally as far away as Japan and Germany, two countries that are especially dependent on trade in manufac...

July 5, 2019

It was anything but smooth sailing, but stock markets ended the second quarter in positive territory and posted their best first half since the dot-com era of the 1990’s. The S&P 500 logged gains of 4% for Q2 and 18% for the first half, and most major indexes broke records set last October. The bull market that began in March of 2009 is now on the cusp of becoming the longest in recorded history.​​

The outlook was darker in the middle of the quarter as trade tensions simmered between the U.S. and virtually all of its major trading partners. A short list of Trump’s activities in the month of May includes raising tariffs on $200B of Chinese imports from 10% to 25%; threatening 25% tariffs on $325B of additional imports; declaring imported cars from Europe and Japan a threat to national security; and threatening 5% tariffs on all Mexican imports. During this period US stocks lost 7%. Anxie...

April 5, 2019

U.S. stocks bounced back strongly from December’s swoon to turn in their best quarter in nearly 10 years. The S&P 500 rose 13%, the Dow added 11%, and the Nasdaq surged 16%. While technology companies led the way, the rally was broad-based, with all 11 sectors in the S&P advancing. This surge represented a remarkable turnaround from the fourth quarter of last year, when U.S. stocks sank an average of 15%. It’s not very often dramatic market moves can be attributed to a single factor. When stocks plunged a quarter ago, we pointed to a number of causes – trade wars, a slowdown in China, and Brexit – as contributing to a more pessimistic outlook. Progress on none of those issues has been great enough to explain this rebound. One factor can, however; the actions of Fed Chairman Jerome Powell.

Even before the Fed raised rates for a fourth time in a year last December, the Treasury yield...

January 11, 2019

Stock markets sank in the last quarter of 2018 with the S&P 500 and NASDAQ indexes entering “bear market” territory, defined as a decline of at least 20% from the most recent peak. While the Dow narrowly avoided the bear, most foreign markets fell even further, making this all but the official end of the nearly 10-year-old bull market. The 4th quarter declines dragged all U.S. indexes into the red for the worst annual losses since 2008. All in all, 2018 could hardly have been more different than 2017, a year that saw stocks rise relentlessly to new records.

With GDP growth near the fastest of this expansion, the reversal in markets stands in stark contrast to the performance of the U.S. economy. Unemployment is at records lows, job creation remains strong and consumer confidence, though dinged by the recent market plunge, remains high. Despite all of this, sentiment in the investment an...

October 8, 2018

After enduring a choppy start to 2018, US stocks rallied broadly in the third quarter with the Dow Jones Industrial index rising 9%. Every sector of the economy saw gains, with healthcare (+15%) and industrials (+10%) leading the way. Overseas markets were left behind as most major European and Asian indexes were flat. Japan proved the exception, but its 7% gain was partially offset by a 3% weakening of the yen to the dollar. The dollar also rallied against the Euro and most emerging market currencies, a trend that could undermine the President’s efforts to reduce the trade deficit. As we highlighted last quarter, rising trade and fiscal deficits pose a key risk to the medium-term outlook for the economy.

For now though, the US remains the world’s strongest economy. The private sector continues to add more jobs than there are people entering the workforce, a condition that has in the pa...

July 6, 2018

Donald Trump promised to dramatically accelerate economic growth in America by lowering taxes, cutting regulations, and bringing jobs back from overseas through better trade deals. In his first year, the President focused on the first two areas, where he enjoyed broad support from Republicans in Congress. Markets cheered the higher corporate profits that these policies promised, sending stocks to all-time highs. Now that the President has turned his attention to trade, however, the results have been choppy so far: foreign stock markets fell, while gains in the U.S. were concentrated in shares of small company and technology stocks that are perceived, rightly or wrongly, to be insulated in the event of a trade war.

The President brings a couple of core beliefs to his latest fight: (1) that the trade deficit is evidence that other countries take advantage of the U.S.; and (2) that a trade...

April 6, 2018

The new year began much like the last one ended, with markets closing at record highs seemingly every day. Then, without warning, volatility came roaring back. On Friday February 2, the Department of Labor issued its monthly report, which merely hinted that wage growth might finally be picking up. The Dow plunged an ominous 666 points. After taking the weekend to stew over what was actually a fairly pedestrian report, markets opened Monday in near panic, plunging 1600 points (6%) before recovering slightly to end down 1175, the largest ever one-day point drop. By the end of the week, the market was in an “official” correction, down more than 10% from the January 26 peak. That week began a period in which the market traded up or down at least 1% in 14 out of 19 trading days. For some context, the market made a 1% move only 10 times in all of 2017. Last quarter’s column discussed the ext...

January 1, 2018

On the basis of an improving global economy and the prospect of corporate tax cuts and in spite of headline risks from North Korea and the Trump-Russia investigation, stocks soared to new highs in 2017. The Dow Jones Industrial Average gained 25% for the year, its best performance since 2013. More remarkable than the gains themselves was the way they got there, with historically low volatility and a seemingly never-ending march upwards. Let’s consider some of the records set by markets last year.

At 3,219 days, this became the second longest bull market in history. The S&P 500 has returned 295% in this period, making it also the second strongest bull market in history. In both cases it is only eclipsed by the boom years of 1987 to 2000 (4,494 days and cumulative gain of 582%). An optimist might look at the math and say the market is poised to double over the next 3 ½ years, but a revers...

October 6, 2017

You will need to read carefully to notice many differences between the 2nd and 3rd quarter market updates. The “eerie calm” we noted last quarter persisted, with no major pullbacks and a seemingly relentless march to new highs. Just as last quarter, North Korean missile tests drew international consternation and inflammatory responses from our President. Once again, there were more surprising revelations in the Russia investigation, and multiple embarrassing failures by Republicans to pass an Obamacare repeal bill. And for the eighth consecutive quarter, the Dow Jones Industrial Index advanced, closing up 5%, as part of a streak which is now the longest since 1997. Despite this and other news, there were again just three instances where the Dow Jones index gained or lost more than 1% in a session – a remarkably low level of volatility.

While the market’s reaction to news events, economi...

July 6, 2017

Continuing the climb we analyzed in our last quarterly report, the Dow Jones Industrial average and S&P 500 each rose 3% in a second quarter that was notable mostly for its lack of volatility. There were provocative headlines, to be sure, including the dropping of the “Mother of All Bombs” on ISIS and the allegation by former FBI Director James Comey that he was asked by the President to drop his investigation of Michael Flynn. Just last week, North Korea successfully tested an intercontinental ballistic missile apparently capable of reaching Alaska and Hawaii. Each time, the market wobbled, and then quickly recovered. By historical standards, the wobbles were both small and rare. Last quarter there were only three days (highlighted in chart) in which the Dow traded up or down more than 1%, and two of those were successive days of gains following Emmanuel Macron’s victory in the first...

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