Benchmark Returns for the Period Ended September 2018
| Annualized | ||||
|---|---|---|---|---|
| Quarter | 1 Year | 5 Year | 10 Year | |
| US Treasury Bills (one month) | 0.48% | 1.50% | 0.45% | 0.27% |
| Barclays Capital US Gov’t/Credit Inter Bond | 0.21% | -0.96% | 1.52% | 3.22% |
| Standard & Poor’s 500 | 7.71% | 17.91% | 13.95% | 11.97% |
| Russell 1000 Value (large cap value) | 5.70% | 9.45% | 10.72% | 9.79% |
| Russell 2000 (small cap) | 3.58% | 15.24% | 11.07% | 11.11% |
| MSCI Europe, Australia and Far East (EAFE) | 1.35% | 2.74% | 4.42% | 5.38% |
| MSCI Emerging Markets Index | -1.09% | -0.81% | 3.61% | 5.40% |
| Wilshire REIT | 0.72% | 3.99% | 9.25% | 7.38% |
| Source for returns: Morningstar TM as of 9/30/2018. | ||||
Quarterly Commentary
US Markets were positive for the quarter with US Large Cap, as measured by the S&P 500, being the top performer with a return of 7.71%. US Small Cap, as measured by the Russell 2000, was up 3.58% for the quarter. International developed markets, as measured by the MSCI EAFE Index, were also positive for the quarter, but just slightly, with a return of 1.35%. Emerging Markets, as measured by the MSCI Emerging Markets Index, were the worst performer for the third quarter, with a return of -1.09%.
International equity markets, both developed and emerging, continued to lag US markets during the quarter. Trade uncertainties, increasing US interest rates, and a strengthening US dollar have all contributed to the relative underperformance of international equity markets. It is important to note that international markets, as measured by the MSCI EAFE and MSCI Emerging Markets index, outperformed the S&P 500 in 2017. We expect certain markets to “zig” while others “zag” and consider this to be the main benefit to holding a globally-diversified portfolio.
Domestically, economic activity remained strong as measured by GDP. Second quarter GDP growth was over 4%, when annualized, and third quarter GDP growth rates are projected at 3.4%. Unemployment remained below 4% during the third quarter. Both of these positive indicators led the Federal Reserve to increase its benchmark fed funds rate target by another .25%, from 1.75% – 2.00% to 2.00% – 2.25%. This was the eighth rate increase since 2015 as the Fed continues to normalize interest rates following the global financial crisis.
While the Fed and the fed funds rate have a substantial impact on interest rates for fixed income securities with maturities of 3 years or less, they have very little influence on long-term interest rates. As we write this commentary, the 10-year treasury rates have risen above 3%. Balancing short-term monetary policy with the long-term market expectations for interest rates will be vital for the Fed over the coming 12-24 months.
As many of you are aware, we are now more than nine years into this current “bull market,” which has handsomely rewarded those investors who are disciplined and diversified. While we would love to tell you that this number has meaning and that we can predict the market’s next move, unfortunately we cannot. Markets are notoriously good at humbling those who think they can predict the performance of any market or asset class. Daniel Kahneman, a Nobel Prize-winning psychologist so eloquently stated, “All of us would be better investors if we just made fewer decisions.”
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.
