Quarterly Commentary – October 2018

In a few weeks is an election that some say is the “most significant of our lifetime”. Really? Sure, it is until the next election season when that will be proclaimed as the “most significant”. Historically the party that holds the White House loses seats in the next mid-term congressional elections. Here are a few examples in the first mid-term election after the election of the following Presidents:

PresidentMid Term YearHouse Seats Lost

For the House of Representatives to change from a Republican to Democrat majority, the Democrats need to pick up 24 seats. Is that possible? Most certainly. Will this be reported as “one of the most dramatic changes in history”? Most certainly it will but reality is that a 24 seat change is normal and hardly the tectonic shift that some will claim. Why do I bring all of this up? Because those in the financial markets that pay attention realize that shifts occur and afterwards the world goes on. Stock markets (Primarily U.S. markets) are up because profits are up, unemployment is down, interest rates while rising are still relatively low and corporate tax rates are lower meaning more corporate profit to be used in capital expenditures, research, dividends and stock buy backs. When personal income taxes are filed early next year many will be pleased, that for a couple filing a Joint Tax return, their first $24,000 of taxable income is free of any income taxes. If you are 65 or over you get a little extra deduction and if you have children you may also be eligible for a per child tax credit. Some will pay more in 2018 income taxes but many middle income tax payers will pay less. All good signs for the economy and stock market.

So with all of this uneasiness, how are the U.S. financial markets doing? From the first of the year to September 30, 2018, the major indexes are as follows:

*All data is gathered from morningstar 
Dow Jones Industrial Average7.04%
Standard & Poor's 500 Index8.99%
Aggregate Bond Index-1.60%
MSCI ACWI ex-US-3.09%

At quick glance one would ask, “Why not switch all of my investments to large cap U.S. stocks”? This would be an easy route to take but one that we strongly recommend against. Buying investments that have already gone up in value is merely an exercise in “chasing returns”. We continue to believe that a well-diversified stock portfolio mixed in with a moderate amount of bonds is a better investment route and overtime will result in better returns. This has been our investment philosophy for years and we see no reason to modify that position any time soon.


Past performance does not indicate future results. This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties.  Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Kestra Advisory Services, LLC. as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The S&P 500 is comprised of 500 stocks representing major U.S. industrial sectors and is considered representative of the market as a whole. Performance figures are inclusive of dividends reinvested. Investors cannot invest directly in an index. Standard & Poor’s Index data can be found at http://www.standardandpoors.com/home/en/us.  The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy. The Nasdaq Stock Market is an American stock exchange. It is the second-largest exchange in the world by market capitalization, behind only the New York Stock Exchange located in the same city. The Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, corporate bonds, and a small amount of foreign bonds traded in U.S. The MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 24 Emerging Markets (EM) countries*. With 2,154 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. EEM is an index of stocks in markets that are deemed to be emerging.