3rd Quarter 2017 Market Commentary

Happy Birthday Economic Recovery!

As June came to a close, the current economic recovery and expansion turned eight years old, the third longest since the end of WWII. That’s according to data compiled by the National Bureau of Economic Research (NBER), which marked the end of the Great Recession in June 2009.

A quick explanation–the NBER is the arbiter of recessions and expansions for the U.S. economy. It bases its calls on data that includes employment, sales, income, and industrial production.

In a vacuum, eight years may not mean very much to the average person, so I will offer some perspective.

Including the current economic recovery, there have been twelve such recoveries since WWII.

The eight-year, or 96-month-long expansion, has only been exceeded by the expansion that began in 1991 and lasted 120 months, and the expansion that began in 1961, which lasted 106 months, or nearly nine years.

The shortest one managed to survive only 12 months. It began in 1980 and fell victim to then Fed Chairman Paul Volker’s decision to use monetary policy–sharply higher interest rates–to crush years of high inflation.

With the short explanation out of the way, you may be asking, “What does that mean to me and my investments?” Or, “The current recovery isn’t young anymore. Is a recession around the corner?”

Bear markets correlate closely with recessions, according to data going back to the mid-1960s (St. Louis Federal Reserve S&P 500 data, NBER).

Expansions eventually come to an end–that’s a given. But there is an expression that Bull Markets don’t die of old age. Instead, they historically come to an end due to economic excesses, i.e., the tech boom of the 1990s or the housing boom of the last decade. Or, the Federal Reserve raises interest rates too high too quickly, discouraging lending and consumer/business spending. Lots of factors go into economic expansion coming to an end but age isn’t one of them.

One of the hallmarks of the current expansion has been its slow and boring pace. For many who have seen wages stagnate or haven’t experienced the benefits from the modest-at-best expansion, there is one silver lining. The slow pace of the recovery has failed to stoke the euphoria in real economic activity that can sow the seeds of dangerous excesses that lead to recessions.

It has also led to a super cautious Fed, that has been slow to tap on the monetary brakes.

Economist have done a poor job of calling turning points in the business cycle. So, I won’t try to predict when the next recession will set in.

What I can say is that most leading economic indicators suggest that the odds of a near-term recession are low. Put another way, economic growth creates profit growth, which is a tailwind for stocks, even as rates gradually rise.

We can never discount unexpected volatility. Remember, timing the ups and down in stocks is rarely profitable longer term. In reality, it usually delays the day you reach your financial goals.

 

Table 1: Key Index Returns

MTD % YTD % 3-year* %
Dow Jones Industrial Average +1.6 +8.0 +8.3
NASDAQ Composite -0.9 +14.1 +11.7
S&P 500 Index +0.5 +8.2 +7.3
Russell 2000 Index +3.3 +4.3 +5.9
MSCI World ex-USA** -0.1 +10.9 -1.9
MSCI Emerging Markets** +0.5 +17.2 -1.3
Bloomberg Barclays US Aggregate Bond TR -0.1 +2.3 +2.5

Source: Wall Street Journal, MSCI.com, Morningstar

MTD returns: May 31, 2017-June 30, 2017

YTD returns: December 30, 2016-June 30, 2017

*Annualized

**in US dollars

I hope you’ve found this review to be educational.

Let me emphasize again that it is my job to assist you! If you have any questions or would like to discuss any matters, or get a second opinion on your investment plan please feel free to give me or any of my team members a call. You can also schedule a no obligation review meeting my clicking here (insert calendar schedule link)

The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

No strategy, such as diversification, can assure success or protect against loss in periods of declining values. Investing involves risk, including loss of principal

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. All indexes are unmanaged and an individual cannot invest directly in an index Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. 

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The MSCI World ex USA Index captures large and mid cap representation across 22 of 23

Developed Markets (DM) countries excluding the United States. With 1,024 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa.Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.