ARTICLES IN 2018

DATE:    July 1, 2018

FROM:   David G. Dietze, JD, CFA®, CFPTM  Founder and President

I. Performance Update

The FAANG stocks (Facebook, Amazon, Apple, Netflix & Google) once again took the wheel and drove the S&P 500 higher during the quarter. Tech is 26% of the index and is up 10.9% for the year through 6/30/18. Consumer Discretionary is 13% of the index and through the second quarter is the best performing sector year to date, up 11.5% (mainly due to Amazon and Netflix which constitute 29% of the sector weight).  Volatility remained high as investors wrestled with embracing companies with solid earnings results, yet fearful of the Federal Reserve raising interest rates faster than expected, and the US and China trade tariffs escalating into a full-on trade war.
 

   MARKET DATA

06/30/2017 to 06/30/2018

Second Quarter 2018

First Half 2018

S&P 500 (dividends reinvested)

14.38%

3.44%

2.65%

NASDAQ (dividends reinvested)

23.59%

6.62%

9.37%

60/40 S&P 500 / TX-EXEMPT SECURITIES BLEND

9.19%

2.41%

1.57%

DOW JONES INDUSTRIALS (dividends reinvested)

16.19%

1.25%

-0.73%

INTERNATIONAL STOCKS (MSCI EAFE IX ID)

6.77%

-1.00%

-2.71%

TAXABLE BONDS (Barclay’s 1-3 Yr Gov’t/Credit)

0.21%

0.28%

0.08%

TAX-EXEMPT SECURITIES (Barclay’s Muni Index)

1.56%

0.88%

-0.25%

 
  • Despite concerns, bonds continued to underperform, with the yield on the US 10-year Treasury touching 3.1% during the quarter, its highest level since 2011; Fears of interest rate risk and inflation outweighed goals of capital preservation.
  • M&A is back with over $1.7 trillion in deals announced globally through June. The approval of the $85 billion AT&T/Time Warner deal set off speculation of other deals in the media space; Comcast and Disney immediately bid up their offers for Fox’s assets. Attention soon moved to the potential approval of the $69 billion CVS/Aetna deal. If approved this too could spark more M&A in the healthcare sector.
  • The energy sector made a roaring come back during the quarter, up 13.4%. Oil finished at $74.13 per barrel, up 285% from the bottom experienced in January 2016, and the highest level since 2014. The supply/demand fundamentals continue to improve: the global economy is on strong footing and the growth in supply has stabilized. With geopolitical unrest in the Middle East brewing, oil prices should remain elevated. 
  • On the global front geopolitical tensions with North Korea eased a bit, as President Trump and Kim Jong Un met to discuss potential denuclearization of North Korea. Uncertainty of this relationship was a major risk for investors entering the year.
  • The future of the European Union returned into question with Italy electing a populist government that is favorable of the country splitting from the EU. Despite this the European Central Bank remained committed to ending its bond buying program by year end. 
  • With interest rates rising and possibly headed higher, and with geopolitical tensions easing, particularly between the US and North Korea, gold continued to underperform, -3% year to date. We continue to believe that gold should be owned in a well diversified portfolio to protect against unforeseen events. 

                         PREVAILING YIELDS AS OF:

FIXED INCOME ASSET

06/30/17

9/30/17

12/31/17

3/31/18

6/30/18

US Government 10 Yr. Note

2.30%

2.33%

2.40%

2.79%

2.85%

5-Year Certificate of Deposit

1.38%

0.99%

1.00%

1.67%

1.74%

Money Market

0.62%

0.71%

0.95%

1.32%

1.57%

II.  Looking Forward

  • We remain fundamentally bullish.  Earnings continue strong, up double digits year over year.  Interest rates are still cheap, spurring demand for real estate, capital expenditures, and big-ticket consumer items.  Consumer spending fuels the economy and benefits from the recent tax cuts.   Sentiment is optimistic, both on Main Street and Wall Street.

  • However, higher interest rates are never a positive for markets or the economy, as they reduce the present value of all assets.  The second concern is tariff threats turning into an all-out trade war.  Another concern is the state of the world’s second largest economy, China.  Its stock market is flashing red, deep in a bear market, at a two year low.  

   

Article Index

Bust that Trust? - Claire Toth, 7.19.18.

Mid-Year Market Outlook by David Dietze, 7.5.18.

Nonportfolio Assets and Your Asset Allocation Plan? by Donna St.Amant, 7.2.18.

Picking up the Pieces - The Benefits of Account Consolidation by Elaine Phipps, 7.2.18.

How to Commit Elder Financial Abuse - and How to Head it Off by Claire Toth, 7.2.18.

Trade Wars: The Saga Continues! by John Petrides, 7.2.18.

Ten Stock Picks for 2018's Back Half by David Dietze, 6.28.18.

10 Key Takeaways From The Berkshire Hathaway Annual Meeting by David Dietze, 5.10.18.

When You Come to the Fork in the Road, Take It! by John Petrides, 5.8.18.

Cybersecurity Starts with You by Claire E. Toth, 4.6.18.

Maximizing Your Portfolio's Returns - Beware the Taxman by Elaine Phipps, 4.6.18.

Fear of Rising Rates? Remember The Reason You Own Bonds by Donna St.Amant, 4.6.18.

Stocks Can Rise in a Rising Interest Rate Environment by John Petrides, 3.12.18.

Profit from Recent Volatility with Stock Market Bargains by David G. Dietze, 3.6.18.

Making Sense of the Market Volatility by David Dietze & John Petrides, 2.12.18.

Doing Well While Doing Good by Claire E. Toth, 2.5.18.

Tax Reform: A Bullish Development  by David Dietze, 1.17.18.

Ten Stock Ideas for 2018 by John Petrides, 1.9.18.

Bullish on 2018? Consider Three Key Issues by David Dietze, 1.5.18.

A Bit About Bitcoin by Claire E. Toth, 1.5.18.

Look Out for the Robo-Advisor by Donna St.Amant, 1.5.18.  

Financially Savvy Charitable Giving: Donor- Advised Funds by Elaine Phipps, 1.5.18.

Is FAANG Long in the Tooth? by John Petrides, 1.5.18.

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