The first quarter of 2019 brought a rebound in most major asset classes as several risks were perceived to have subsided, and some investors jumped at the opportunity of cheaper asset prices at the end of 2018. The three risks mentioned in our previous newsletter -- Federal Reserve hiking interest rates, government shutdown, and trade war escalation with China -- appear to be in a much better place a short three months later.

Without a doubt, the last six months have been a reminder that volatility can happen quickly – in both directions – and therefore knowing one’s own risk tolerance and maintaining a well-diversified portfolio are both very important for an investor in staying the course with their long-term plan.

Turning to the major indices’ first quarter returns, the S&P 500 returned +13.6% and the MSCI EAFE (international developed market stocks) returned +10.1%. Small cap US Stocks and US Real Estate Investment Trusts (REITS) fared even better, returning +14.6% and +16.3%, as represented by the Russell 2000 and MSCI US REIT indices. On the fixed income side, the Barclay’s U.S. Aggregate Bond index returned +2.9%.

Looking at the fundamentals, the earnings growth of the S&P 500 is expected to be negative in the first quarter of 2019. Due to the changes to the tax code in 2018, the year-over-year earnings comparisons are going to be a tougher, higher bar for companies, but the market has thus far taken the slower growth in stride. The other big economic news in the first quarter was a brief inversion of the yield curve between the 3-Month Treasury Bill and the 10-Year Treasury Bill. Historically, an inverted yield curve has often foreshadowed a recession, therefore market participants have watched the yield curve closely. We are cautious to draw definitive conclusions with one data point, but remain committed to a diligent and prudent investment decision-making process.

As we’ve mentioned in the past, periods of low volatility are a great time to reconfirm that your portfolio’s allocation matches your need, ability, and willingness to take risk. We encourage you to call, email, or use our online portal with any questions you have related to this or anything else.

Daniel Schoenecker, CFA, MBA
Director of Financial Planning and Investment Management Services

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.