Benchmark Returns for the Period Ended September 2017

Quarter 1 Year 5 Year 10 Year
US Treasury Bills (one month) 0.25% 0.59% 0.16% 0.36%
Barclays Capital US Gov’t/Credit Inter Bond 0.60% 0.23% 1.61% 3.64%
Standard & Poor’s 500 4.48% 18.61% 14.22% 7.44%
Russell 1000 Value (large cap value) 3.11% 15.12% 13.20% 5.92%
Russell 2000 (small cap) 5.67% 20.74% 13.79% 7.85%
Morgan Stanley Europe, Australia and Far East (EAFE) 5.40% 19.10% 8.38% 1.34%
Wilshire REIT 0.61% 0.10% 9.51% 5.55%

Quarterly Commentary


The U.S. economy saw slightly weaker growth during the third quarter with a 2.7% GDP estimate, down from 3.10% during the second quarter. Hurricanes Harvey and Irma dented economic activity slightly but activity is expected to rebound quickly with rebuilding and new purchases to replace lost goods. Inflation is remaining stubbornly low at an annualized 1.40%, well below the Fed’s 2% target. Increased oil and lumber prices due to the hurricanes should help bolster inflation temporarily in the coming months.

As expected, the Fed, confident that the economy is performing well, said that in October it will begin a slow unwinding of its decade long “quantitative easing” by not replacing assets as they mature. This will reduce its massive balance sheet by as much as $10 billion per month. The Fed currently holds $4.5 trillion in Treasury securities and mortgage-backed assets, which is approximately one-fourth of the U.S. annual GDP. There is also a high probability of one more .25% rate hike before year-end.

For the first time since the 2008 financial crisis, major economies of the world are expanding in unison with all asset classes posting positive returns for the quarter. The Dow and S&P 500 continued their onward march with new all-time highs and returns of 5.58% and 4.48% respectively. This is their eighth straight quarter in positive territory which has only happened four other times in history. Domestic large-value stocks also performed well, closing the quarter up 3.11%. After lagging for several quarters, small-cap stocks rebounded with the Russell 2000 posting a 5.67% gain. REIT was the lowest performing asset class with the Wilshire REIT gaining .61%. The yield on the 10-Year Treasury was nearly unchanged at 2.32%.

Emerging markets, as represented by the MSCI Emerging Markets Index, continue to outpace both domestic and foreign developed markets with a quarterly return of 7.89%. With three months remaining, the index is up a staggering 27.78% for the year. Other international stocks as represented by the EAFE trailed close behind with a 5.40% gain for the quarter.

The last two decades have highlighted the importance of long-term investing and broad diversification in a portfolio. When the S&P 500 was “flat” from 2000 through 2009 (the “lost decade”), emerging markets were up more than 160%. When emerging markets had their “lost decade” from 1994 through 2003 (up only 1%), the S&P 500 was up almost 185%. More recently, emerging markets from 2008 to 2016 were down 16%, but the S&P 500 was up almost 85%. Periods of poor performance for asset classes can persist for an unnerving timespan but diversification helps smooth the ride. Not being properly diversified or making poor market timing decisions during these periods can have a significant impact on your overall wealth. There are two takeaways here. Diversification is important and time is an investors’ best friend. Legendary investor Warren Buffett sums it up perfectly: “Our favorite holding period is forever.”

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.