Week 40 Sitrep

The S&P 500 Index struggled through some difficult news last week finishing down just under 1% for the week. Smaller companies in the U.S. market were even worse. In a reversal from the first two weeks of September, the Russell 2000 small company index lost nearly 2.5%. Of the three primary market drivers we have discussed for several weeks, the political drivers continue to cause uncertainty in the stock market.1

Source: J.P. Morgan Asset Management, Weekly Market Recap, 9/30/19

 

The returns last week further amplified the differences in returns for the year between the various investment styles. Medium and large companies with a growth bias continue to show returns better than 20% while smaller companies with a value bias are up nearly 13%. The technology, real estate and utilities sectors are still top performers; however, there are seven sectors with returns over 20% for the year. Clearly, the health care and energy sectors are the laggards up “only” 4.7% and 6.8% respectively.

Source: J.P. Morgan Asset Management, Weekly Market Recap, 9/30/19

 

As the third quarter of 2019 draws to a close, we have some significant accomplishments to consider. The S&P 500 Index appears to have secured a 20%-plus gain for the first nine months of the year. According to Bespoke Investment Group, 2019 breaks a 21-year streak where the index has not gained 20%-plus in the first nine months of the year. In prior years when the S&P 500 Index was up more than 20% for the first three quarters, the month of October tended toward mediocre performance. However, the remainder of the year was historically strong.2

Source: Bespoke Investment Group, Chart of the Day, 9/30/19

Source: Bespoke Investment Group, B.I.G. Tips Report, 9/30/19

 

While the first few days of October bring questions about upcoming economic growth, we remain optimistic about the current bull market. The economic numbers in question are related to industrial and manufacturing data, which are directly impacted by the concerns over trade agreements. The remaining economic data continues to support future growth, albeit at a slower rate.3

Source: Bespoke Investment Group, Pros and Cons, 9/27/19

 

The month of September has a history of being volatile and uncertain; it is the only month of the year with a negative average return for the Dow Jones Industrial Average (DJIA). We managed to escape the month with a small positive return for most major U.S. indexes. The “seasonality” for October and the last quarter of the year is quite positive as shown in the chart from Bespoke below4:

Source: Bespoke Investment Group, B.I.G. Tips Report, 9/30/19

 

Apparently, many investors also feel confident about the current equity markets. Our investment committee believes strongly in following investment flows which track where investors are placing money in the market. The final two weeks of September saw significant new money going into stock/equity ETF investments. The data is encouraging since we saw investors removing money from stock investments in the month of August. There is also evidence that stock indexes perform well immediately after seeing high inflows to equity funds.5

Source: Bespoke Investment Group, Chart of the Day, 9/26/19

 

While the markets appear questionable in the last two days, our committee remains devoted to identifying which risks in the market to avoid. Our clients have seen occasions where we eliminate specific areas of the market in the last two years, such as international stocks in early 2018, small company stocks in December of 2018, and healthcare stocks in early 2019. The primary reason to avoid these investments is because our research process showed a higher level of risk, making it difficult to be compensated fairly for said risk. As we have witnessed for the last two years, the markets are concerned about the uncertainty of trade issues and future economic growth. Despite those concerns, our client portfolio’s have participated in strong market gains for 2019.

If you’d like to schedule a time to discuss your portfolio or the markets in detail, please feel free to call our office at (281) 616-5935. We welcome the opportunity to sit down with you and learn more about your situation so we can help you optimize your portfolio to meet your financial goals for years to come.

Engrave Wealth Partners Investment Committee

Bill Day, CFP®, CIMA

Taylor Parker, CFP®

Greg Parker


Footnotes:
1. J.P. Morgan Asset Management, Weekly Market Update, 9/30/19
2. Bespoke Investment Group, Chart of the Day, 9/30/19
3. Bespoke Investment Group, Pros and Cons, 9/30/19
4. Bespoke Investment Group, B.I.G. Tips Report, 9/30/19
5. Bespoke Investment Group, Chart of the Day, 9/26/19

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