TrustWell’s Quarterly Market Review: Q4 2018

By Brett Freese

Highlights

Federal Reserve:
On 12/19/18 The Federal Open Market Committee continued to raise short term rates on a managed plan. There are no major inflationary pressures as of yet and I am a bit curious as to what data they are seeing to continue raising interest rates. In my opinion, a more cautious “wait and see” plan by the Fed in light of current market and economic conditions would be prudent. The fourth quarter market returns are saying there is a disagreement between investors/businesses and the Federal Reserve about current and future strength of the economy.

Global Trade Policy and Discussion:
Regardless of your political bent, the trade discussions and policies have been “interesting” to say the least. In light of this – US equities have outperformed (for the most part) international equities including the recent market decline. If trade tensions ease, investors’ money may likely flow back into international equities.

90% of the 70 asset classes are down this year:
Diversification has been difficult this year and according to the Wall Street Journal 90% of the 70 asset classes are down in 2018 and it is the highest percentage of negative asset classes since 1920.

Historical Stock Market Declines:
Market declines and inclines rarely look the same or even feel the same, but they do happen and it is a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.

A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years

Please know that when stock prices go down, the market collapse gurus and voices get the most media air time just like when stock prices go up, all the bull gurus talk about how the market will be up BIG.  Know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.

Market Scorecard for the 4th Quarter of 2018:

US Equities:

-14.26%                S&P 500 (Index of the largest US publicly traded companies)

-20.84%               Russell 2000 (Index of 2000 Small-cap US publicly traded companies)

Global Equities:

-12.68%                MSCI EAFE (Index of Large and Mid-cap across 21 developed markets non-US)

-8.05%                 MSCI EM (Index of Large and Mid-cap across 24 emerging markets non-US)

US Bonds:

+1.39%                 Barclays US Aggregate Bond Index (Broad Bond Market Index)

-0.54%                 USTREAS T-Bill Constant Maturity Index (US Short-term Bills Index)

+1.66%                 Barclays Municipal Bond Index

Other:

+0.09%                Morningstar World Bond Category Index

+1.57%                 Commodities – Precious Metals

Market Indicators:

Inflation:
2.18% as of 12/21/18

Unemployment: 
3.7% as of 12/21/18

Fed Funds Target Rate:
2.5% as of 12/19/18

Suggested Next Steps:

• Make sure you understand how your investment allocation and diversification are important factors in both risk management and returns.
• Understand that market cycles are normal. The markets go up and down in mostly unpredictive directions and size. The ups and downs of investments many times seem to make sense after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
• Your investments are just one factor in the success of your life, money and purpose. Make sure that you are confident in your full financial plan.
• If you have questions about your investment plan, please schedule a phone or in-person meeting with your TrustWell Financial Advisor.