Articles In 2017
DATE: October 1, 2017
TO: POINT VIEW CLIENTS
FROM: David G. Dietze, JD, CFA, CFPTM Founder and President
I. Third Quarter 2017 Performance Update
Markets continued to grind higher in Q3, seemingly oblivious to natural disasters and geopolitical tensions. Three storms slammed the US and Puerto Rico, creating massive havoc and heart wrenching disaster. Meanwhile, threats and sabre rattling between North Korea and the US forced everyone to think about the unthinkable, nuclear war, and what that could mean.
Markets also seemingly chose to ignore the implications of our Federal Reserve’s transition from “quantitative easing”, or QE, to “quantitative tightening” or QT. QT will reduce monetary accommodation via the Fed shrinking its balance sheet. Further, another rate hike seems to be on the table for December. On balance, we believe markets can still power ahead as any QT is still in the context of extremely low interest rates. The Fed may yet postpone those plans due to the absence of inflation. The Fed’s plans may be somewhat negated by the still very easy money stance of overseas central banks.
|S&P 500 (dividends reinvested)||
NASDAQ (dividends reinvested)
|60/40 S&P 500 / TX-EXEMPT SECURITIES BLEND||11.28%||3.11%||10.35%|
|DOW JONES INDUSTRIALS (dividends reinvested)||25.27%||5.53%||15.34%|
|INTERNATIONAL STOCKS (MSCI EAFE IX ID)||19.02%||5.35%||19.94%|
|TAXABLE BONDS (Barclay’s 1-3 Yr Gov’t/Credit)||0.67%||0.35%||1.06%|
|TAX-EXEMPT SECURITIES (Barclay’s Muni Index)||0.86%||1.05%||4.66%|
- Volatility in equities during the quarter was short lived, and investors piled back into stocks, sending the markets to all-time highs. The S&P 500 has now completed 102 consecutive months without a bear market (defined as a 20% drop from its peak), its longest such streak since the late ‘90’s.
International equities continued their torrid pace with a key international benchmark up 21% year to date. Entering the year, the US dollar had rallied sharply on hopes for pro-growth Trump economic policies and following a hawkish Federal Reserve stance on monetary policy. Neither has come to fruition; as a result, the US Dollar has weakened and foreign currencies have rallied strongly.
Those sectors with international exposure have been strong performers. Year to date Basic Materials is up 16.7%, Technology 23.8 %.
For the first half of the year, domestic small cap stocks have been among the weakest performers. However, renewed hopes for tax reform helped cause the small cap Russell 2000 index to rally 6.1% in September.
Bond yields reversed course in Q3, with the first quarterly uptick in 2017. Deflationary concerns abated somewhat following strong quarterly earnings, predictions of a less accommodative monetary policy, and renewed predictions of growth stimulating tax reform. However, many market participants remain skeptical that in fact much central bank tightening will occur given such low inflation rates. Monetary policy is also somewhat up in the air due to Chair Yellen’s term expiration in early 2018. Her replacement is still not known.
PREVAILING YIELDS AS OF:
|FIXED INCOME ASSET||9/30/16||12/31/16||3/31/17||6/30/17||9/30/17|
|US Government 10 Yr. Note||1.61%||2.45%||2.40%||2.30%||2.33%|
|5-Year Certificate of Deposit||0.81%||0.82%||0.89%||1.38%||0.99%|
II. Looking Forward
- Technology and the FAANG stocks continue to lead the charge. We don’t believe the S&P 500 actually represents “the market” today in a diversified way since Tech constitutes 24% of the S&P 500 index; indeed, the FAANG stocks account for nearly 50% of the returns. Investors do not yet appreciate the risks being taken by simply buying that index.
- The enclosed shows the recent performance of all of your Fidelity accounts (if under management for more than 3 months and fully invested by Point View), and your investment advisory invoice.
Is FAANG Long in the Tooth? by John Petrides, 12.6.17.
Don’t Wait for Congress—Cut Your Taxes Today by Claire E.Toth
Bullish on 2018? Consider Three Key Issues by David Dietze, 11.27.17.
Favor Value Over Growth for 2018 by David Dietze, 11.22.17.
Tax Reform: The Good, The Bad, and The Ugly by Claire Toth, 11.7.17.
A Deep Dive into Bonds by Elaine Phipps, 11.2.17.
Your 2018 Tax Planning Has Begun by Claire Toth, 10.23.17.
Decluttering Your Household? Don’t Forget Your Investment Portfolio by Donna St.Amant, 10.5.17.
Dow 1,000,000!!! by John Petrides, 9.25.17.
Equifax, Cybersecurity, and You - Claire E. Toth, 9.12.17.
The Dogs of the Dow: Puppy Love For Your Portfolio! - David Dietze, 8.28.17.
College Parents' Packing List - Claire E. Toth, 7.25.17.
When Having Cash Causes Anxiety - John Petrides, 7.25.17.
Rollover Strategies - Donna St.Amant, 7.6.17.
Mutual Fund Illusion - Beware of What Lies Behind the Curtain - Elaine Phipps, 7.5.17.
Don't Go Too Far Over Your Skis - John Petrides, 7.5.17.
Budget Basics - Claire Toth, 6.19.17.
Why You Don't Want to Outperform This Market! - David Dietze, 6.1.17.
Has the "Great Rotation" Finally Begun? - John Petrides, 3.31.17.
Traveling Abroad for Investment Opportunities - Elaine Phipps, 3.31.17.
Allocate, Rebalance, Reduce! A Primer for a Profitable Portfolio - Donna St.Amant, 3.31.17.
Growth v. Value v. Momentum - Barbara Tomalonis, 3.31.17
Back to Basics - Your 401K - Claire Toth, 3.31.17.
Buy Bonds Now? - David Dietze, 3.15.17.
The Market Outlook Amid Record Highs! - David Dietze, 2.21.17.
10 for 2017! Investment Picks for the New Year - David G. Dietze, 1.6.17.
Your 2017 Resolutions - Claire Toth, 1.6.17.
Technology: The Go-Go Dividend Stocks - John Petrides, 1.6.17.
Closed Fund Open Mind - Donna St.Amant, 1.6.17.
Today's Bond Market - Should I Stay or Should I Go?- Elaine Phipps 1.6.17.