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October 2016 Investment Insights

By October 19, 2016No Comments

MARKET RECAP

  • All major equity markets had positive returns in the third quarter, led by international and emerging markets
  • Worst performer: Volatility Index (VIX), down 15%
    • The VIX, a measure of market volatility, is down over 45% in the past 12 months; however, volatility could pick up with the election or with a possible Fed rate hike coming later in the year
  • The S&P 500 returned 3.9% on the quarter
    • The index has now experienced seven straight months of positive performance
    • Top Sectors: Technology (+12.4%), Financials (+4.0%)
      • Financials still remain the worst performer year-to-date, down -0.3%
    • Bottom Sectors: Utilities (-6.7%), Telecom (-6.6%)
      • These interest rate sensitive sectors are underperforming due to rising long-term bond yields causing their yields to look less attractive
  • The Russell 1000 (large and mid-sized companies) Growth Index outperformed the Russell 1000 Value by 1.1%’
    • This was a reversal from the first half of the year, Value is still outperforming by 4% year-to-date
  • International markets outpaced the U.S in the third quarter with the MSCI EAFE index up 1.27%
    • Within international, emerging markets outperformed and continue to be the best performing asset class this year as global economic growth concerns subsided
  • Long-term Treasuries continued their downturn from August, finishing down -0.6% in the quarter
    • A 0.11% rise in the ten-year Treasury yield during the quarter suggests a higher possibility of a Fed rate hike later this year

ECONOMIC NEWS

  •  In the past three months, job growth averaged 192,000 new jobs per month**
    • The unemployment rate is at 5% which is in the range of the Fed’s target level
    • September marked the 72nd consecutive month of job growth since the 2007-09 recession
  • In an attempt to boost economic growth, The Bank of Japan announced it would target a zero interest rate level on its ten-year government bonds
  • With three members dissenting, officials opted to leave interest rates unchanged in the September Federal Reserve meeting, suggesting a rate hike may be likely by the end of the year

Monthly Recap 10-1-16 Final

ELECTIONS & MARKETS

Should we worry about the election?
What do presidential elections mean for the markets?
DOES THE MARKET DO BETTER UNDER DEMOCRAT OR REPUBLICAN LEADERSHIP? **

oct2

Based on 41 years of Republican control and 48 years of Democrat control since 1928 or 36 years under Republicans and 33 years under Democrats since WWII, the Democrats do better in terms of stock market returns.
HOW ABOUT WHEN THE PARTIES ARE SPLIT BETWEEN THE PRESIDENCY AND CONGRESS? **

 

oct3

Democrats seem to fare better in this case too. The President/Congress split numbers also look interesting. So, who knows? Well, here’s my take. Look again at the returns on the above charts. What do they all have in common? They are all positive. Not a negative one to be seen.

oct4

Since 1928, out of 22 presidential election years, only 4 years had negative returns. In other words, over 80% of the time the S&P 500 return was positive – no matter a Democrat or a Republican. This is pretty good evidence to stay invested regardless of which party is in office.

SO WHAT DOES THE ELECTION OUTCOME MEAN TO YOUR PORTFOLIOS AT ARGI?

Whatever the outcome of the election, it’s probably best to simply stay the course, be diligent in your planning, diversify, and keep your risk tolerance in-line with your long-term goals. ***
Until next month….

* S&P 500®: Standard & Poor’s (S&P) 500® Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad US economy through changes in the aggregate market value of 500 stocks representing all major industries
** Charts are shown for illustrative purposes only, past performance is not indicative of future returns
***Diversification does not assure a profit or protect against a loss