Benchmark Returns for the Period Ended December 2018

Quarter 1 Year 5 Year 10 Year
US Treasury Bills (one month) 0.56% 1.81% 0.57% 0.32%
Barclays Capital US Gov’t/Credit Inter Bond 1.65% 0.88% 1.86% 2.90%
Standard & Poor’s 500 -13.52% -4.38% 8.49% 13.12%
Russell 1000 Value (large cap value) -11.72% -8.27% 5.95% 11.18%
Russell 2000 (small cap) -20.20% -11.01% 4.41% 11.97%
MSCI Europe, Australia and Far East (EAFE) -12.54% -13.79% 0.53% 6.32%
MSCI Emerging Markets Index -7.47% -14.58% 1.65% 8.02%
Wilshire REIT -6.93% -4.84% 7.87% 12.19%

Quarterly Commentary

Global equity markets were negative across the board for the fourth quarter, with US Small Cap (as measured by the Russell 2000) being the worst performing equity asset class, at -20.20%. Real Estate Investment Trusts (as measured by the Wilshire REIT Index) was the best performing equity asset class, at -6.93%. Even with increasing interest rates, fixed income was positive 1.44% for the quarter (as measured by the Bloomberg Barclays Intermediate US Government/Credit Index).

As expected, the Federal Reserve increased its benchmark interest rate another 0.25% in December. Investors are now waiting to see what steps the Fed will take as they look to normalize interest rates and shrink the balance sheet, which remains well above its historic average.

The partial government shutdown that began in December continues to play out. Historically there have been 21 government shutdowns since 1976 (including the current one) with only nine lasting five days or more, during which the market’s average return (as measured by the S&P 500) was -0.94%. Returns for the twelve months following those nine extended shutdowns averaged 10.77%. Meanwhile, trade concerns continue as the US and China are stuck in a stalemate, with neither side eager to cave to the other’s demands. As the world’s two largest economies, it is in the best interest of both countries to come to a quick resolution.

One might read this and justifiably wonder, “Why would I want to invest in a market with this much uncertainty?” The short answer is that without uncertainty there would be little reward for investing. As Warren Buffet advised, “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

Market volatility is expected and should not cause alarm nor dramatic changes in your overall investment plan. While we cannot control the market, we can control how we react to it. As stated in our recent client e-mail, we actively monitor your portfolio to ensure that its positioned to meet your long-term goals.

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. Source of government shutdown data: Vanguard