Quarterly Commentary – April 2019

Under the category of “you never know” who would have thought that 8 games in to the Major League Baseball season that the Seattle Mariners would be 7-1? My answer, no one. So, in that light go back to December 31, 2018 when the Standard & Poor 500 Index had just dropped -13.52%. At that time, many were saying the government shutdown could go on for months, that GDP would take a major hit, that global growth was slowing (if not ending), that corporate profit growth would be zero, tax refunds were less than last year and that a recession was looming around the corner. For the quarter ended March 31, 2019 the major stock indexes performed as follows:

S&P 500 Index  (essentially the largest 500 U.S. companies) 13.65%
Dow Jones Industrial Average  (30 large U.S. companies) 11.15%
Nasdaq  (broad index of U.S. companies with many technology) 16.82%
MSCI ACWI ex USA  (large/foreign/non-U.S. companies) 10.31%
EEM  (companies based in emerging/newer markets) 9.70%
AGG  (broad based bond index) 2.94%

So, what happened?  In our opinion the gloom of the 2018 4th quarter was way overblown. Under the adage that “things are never as bad as they seem nor as good” the dynamics of the 4th quarter were not nearly as bad as some were painting. This is not to say that we as a Nation or the economy do not have concerns/problems. There are of course many things that can keep us up at night. However, the reality is that our economy (as measured by GDP) is still growing, the unemployment rate is still low, and in a quick reversal, the trend of rising interest rates have come to a screeching halt. As of April 3, 2019, the 10 Year U.S. Treasury pays an interest rate of 2.517%, down from 3.24% in late October of last year. This means that the cost of borrowing by the U.S. government fell by 22% in less than six months. That is a dramatic move which effects borrowing of all types, including home loans. In regard to home buying, while the price of a home is very important, we suggest that the payment related to that purchase is far more important. A 1% change in interest rates on a home’s mortgage will have as much, or more of an impact on the home’s affordability than a $100,000 increase in price. Spring buying season is upon us and unlike many of the past few years, there seems to be a marked increase on the number of homes on the market. Prices should stabilize a bit from the massive run up (in the Puget Sound area) over the past few years, but as with any financial forecast only time will tell.

Where do we go from here? Our feeling is that U.S. corporate profits will be better than the zero growth projections of some and that the financial markets will continue to do what they have always done. Some quarters will be up, and others will be down, but in general we will continue to see an upward trajectory. It is not rocket science, just the forecast that over time, human behavior is pretty consistent.


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.