3rd Quarter Market Update 2019
After a strong first half, the markets are once again showing signs of nervousness. The fears are not new: trade war tensions between the U.S. and China, geopolitical issues in Iran, as well as concerns about global growth. With all this news swirling, the Fed followed in the footsteps of the European Union and cut interest rates, twice. These rate cuts should have helped with the volatility but most of the benefits from the announcement were realized in the second quarter. Instead the market seemed to focus more on what could happen next year.
As of now, earnings are expected to increase 10% in 2020, but with a decline in business confidence and manufacturing indexes moving lower, investors seem doubtful that that level of growth is achievable.
Dividend Growth Still Strong
The good news is even with the uncertainly around next year's growth, dividend growth remained strong in the quarter. And while only 3 of our names had increases this quarter, 95% of our holdings have seen an average increase of 10% year to date versus 6% for the SP 500.
As interest rates continue to drop (we foresee another one or two cuts to come), the search for yield returns. As of September 30, 2019, CAIM's portfolio yields 2.9%. This is significantly higher than the 10 year Treasury yield of 1.7% and the SP 500 yield of 1.87%, as shown graphically below.
The lack of business confidence is starting to affect consumer confidence. All the headline news about trade wars, along with the uncertainty surrounding the outcome of the Presidential election next year, has caused people to question the stability of jobs and income growth. We have had good employment growth this year, but need governments and countries need to start working together to help consumers feel more secure.
In summary, while we remain positive on the markets for the long term, we also believe volatility remains in the near future.
As always we advise clients to keep 1-2 years of cash needs in CDs, money funds or very short term treasuries. Our portfolios can help clients with both growth and income needs over the next 3-5 years.