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Investment Newsletter - Q4 2018

The 3rd quarter of 2018 saw a rate hike by the Fed, which while has been helping to increase interest rates, also hurts, at least temporarily, the value of bond holdings. The trade/tariff war has been front and center and still continues, and as a part of that consequence, it has had a negative affect on international stocks, particularly those in emerging markets. 

We give you more detail of the 3rd quarter further below, and there is also a link that can be read from Russell Investments on their Q4 outlook, located on the right.  

In this issue of our Investment Newsletter:
  • An overview of recent market activity, along with 
    Our Perspective...
  • Our current investment topic is: Should you worry about market volatility? 
  • A recap of the performance of major market indices from the past quarter and year-to-date. 
  • What is an open enrollment period?
  • Upcoming Economic Calendar

You will find past investment articles , and recent stock market commentary and outlook , by clicking on the relevant Quick Links on the right , or peruse past investment topics by clicking the  Articles tab above or directly on our website. 

If there is a topic of interest you would like to see covered in the future, please reply back to this email to let us know, or click here . Likewise, i f you have any questions on this or anything else, feel free to reply back.
Investment Topic:
Should You Worry About Market Volatility?
For our investment topic, Should you worry about market volatility? we attempt to give a high-level overview of the topic. To learn more, please click here

Our Perspective on Recent Market News and Activity

Our synopsis of the past quarter, a look ahead, and putting it all in perspective:

3rd Quarter in Review:  (some content from JP Morgan Asset Management and Russell Investments): The 3rd Quarter of 2018 was a strong quarter for U.S. stocks with Large Caps leading the way. The challenge in 2018 has been that while U.S. stocks are doing very well, total returns are being brought down by other key asset classes such as Bonds and International Stocks. In September, U.S. consumer confidence hit its highest level since 2000, while the monthly average of initial jobless claims fell to the lowest level since 1969. Wage growth rose to the highest level since 2009, supporting retails sales growth of over 7%. Also, the National Federation of Independent Business's survey showed that small businesses were the most optimistic they've been since the survey began in 1974. Against this remarkably strong growth backdrop, it's not surprising that U.S. equities have delivered attractive returns.
Emerging Market (EM) equities have been weighed down by a slowdown in the pace of Chinese credit growth, fears over the vulnerability of some economies to tighter U.S. monetary policy and concerns about the potential impact of global trade tensions. China has successfully slowed the pace of non-bank credit growth but, faced with the external headwind of U.S. tariffs, the authorities are now easing policy to support domestic growth, while maintaining regulatory pressure on shadow lending. This should provide some support for those EM countries that depend on Chinese demand. UK equities have been weighed down by fears of a no-deal Brexit. The most obvious near-term risk to the global economy is the potential for a further escalation in trade tariffs emanating from the U.S. and the subsequent retaliation. So far, the U.S. is imposing tariffs on about $250 billion of imports from China, and China has retaliated with tariffs on about $110 billion of U.S. exports to China. The tariff rate is scheduled to increase in January if a deal cannot be reached and an escalation to imposing tariffs on all of China's exports to the U.S. has been threatened. However, the trade negotiations haven't been all bad news, with a new NAFTA deal and a cooling in threats to impose tariffs on U.S. auto imports at least for now. Bond returns have been pretty uninspiring, against a backdrop of a very strong growth, rising inflation, and rising interest rates in the U.S. It is notable however that while unexciting, bond returns haven't been as bad as some might have predicted. Overall, global growth remains positive but less synchronized than last year. For now, the U.S. stands out as the clear leader in terms of growth.
Positive performers in the 3rd Quarter were the S&P 500 Index, up 7.20%, The Dow Jones Industrial Average up 9.01%, Russell Mid-Cap Index up 4.57%, Russell 200 Index (Small Cap) up 3.26%.
Laggards in the 3rd Quarter were the Barclays U.S. Aggregate Bond Index down -0.73% , the Barclay's Municipal Bond Index down -1.20%, MSCI EAFE International Equities up only +0.75%, MSCI Emerging Markets down -2.02%, Commodities down -2.53%, Managed Futures down -0.35%, and REITS down -0.24%
Looking forward to Q4:   The United States has been at the front of the pack in 2018, delivering strong economic growth, earnings growth and market performance. However, this strength comes at a price: The Fed looks more likely to push interest rates into a restrictive policy setting, and optimistic industry analyst expectations set a high bar for further positive surprises. Trade policy is a wildcard, but thus far, U.S. businesses appear resilient to this source of uncertainty.

The challenge for financial markets is that the recent strength in U.S. economic and earnings trends have been modestly better than forecasted and this strength is being projected far out into the future. Many equity analysts have raised their 5-year earnings growth estimates and Economists have ratcheted up their forecasts for U.S. real GDP growth in both 2018 and 2019.
We agree with the notion that the U.S. economy and corporate earnings are likely to remain healthy over the next 6-12 months, however against such elevated expectations it is difficult to see where the next positive surprise can come from for the markets.
We anticipate another rate increase in December, and many that we speak to seem to feel that 2019 will bring at least another three to four, 0.25% increases. Of course, a key risk is the U.S.-China trade war and policy negotiations. While the U.S. should be more insulated than other international markets from trade risks, and to date there is little evidence thus far to suggest that trade concerns have derailed business confidence, hiring, or capital expenditures, it still remains a major risk on many businesses' radars.
The 10-year U.S. Treasury currently stands at 3.07% at the beginning of the 4th Quarter, with continued focus on the spread between the 10-year and 2-year Treasury yield. Prevailing flattening trends suggest an inversion in the yield curve is possible around the turn of the year. Inversions have historically served as a reliable early warning sign that a recession could occur over the next 9 to 18 months. This means recession risks may be elevated around late 2019 or 2020. There is however an active debate among economists today around primarily centered around the unprecedented stimulus and how that may interfere with other historical time periods, as well as using a comparison of the 2- and 10-year Treasury spreads vs. what historically was looked at being the 3-month and 10-year Treasury spreads. This newer model used to recognize the low supply of 3-month Treasury Bills, however is the narrowing spread actually as close as one might think?
There is also the risk that oil prices could head higher as a global supply is restricted by the renewed U.S. sanctions against Iran, the economic collapse in Venezuela and the growing risks of a civil war in Iraq.   Emerging markets look oversold as the third quarter ends, though still offer reasonable value, but we believe the risks of an escalated trade war and a stronger U.S. dollar on the back of a more hawkish Fed argue for caution for now.
It will be interesting to see when other asset classes which have lagged will start to reverse that trend, as we know that over time asset class movement is cyclical, and normally what has done well will cool off, and what has underperformed will revert to its mean.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Major Market Indices

Below is the Q3 '18 price return and year-to-date performance of some of the major indices:

Index Q3 2018 2018 YTD
US Treasury 3 Month T-Bill
0.53% 1.41%
Barclay's US Aggregate Bond Index
Barclay's Municipal Bond Index
-1.20% -3.50%
S&P 500 Index (US Large Cap)
Russell 1000 (US Large Cap)  6.93% 8.96%
Dow Jones Industrial Average 9.01% 7.04%
Russell Mid Cap  4.57%  6.12%
Russell 2000 Index (US Small-Cap)  3.26% 10.49%
MSCI EAFE International: Developed Markets
0.76% -3.76%
MSCI International: Emerging Markets
-2.02% -9.54%
Bloomberg Commodity Index
-2.53% -3.36%
Credit Suisse Long/Short Index
(as of 8/31/2018)
-0.35% 2.14%
DJ US Select REIT Index -0.24% -0.45%

Quick Links

Our current investment topic: 

Should you worry about market volatility?

Recent reports and/or articles of interest:

Stay Connected
What Is an Open Enrollment Period?
(The below article is a good summary of an explanation of various "open enrollment" meanings. This uses sources by the Department of Health and Human Services; Internal Revenue Service, Office of Information and Regulatory Affairs, Office of Management and Budget, and The article is originally from, and can be found at: )

Open Enrollment Dates May Vary
Open enrollment is a period of time each year when you can sign up for health insurance. If you don't sign up for health insurance during open enrollment, you probably can't sign up for health insurance until the next open enrollment period, unless you experience a qualifying event.

If you're eligible and apply for health insurance during open enrollment, the health plan must insure you. The company is not allowed to use underwriting or require evidence of insurability, both of which could make it harder for you to get health insurance.

What Health Insurance Sources Use Open Enrollment Periods?
Open enrollment periods are common and in place for:
  • Medicare
  • Job-based health insurance
  • Individual market health insurance, as a result of the Affordable Care Act (enrollment windows apply both in the health insurance exchanges and outside the exchanges) 
When Is Open Enrollment?
The time of year for open enrollment depends on the health care plan you choose:

Medicare open enrollment runs from October 15 to December 7 each year. Note that this does NOT apply to Medigap plans, which don't have an annual open enrollment period. Medigap plans are only available without medical underwriting during your initial enrollment period, or during one of the very limited special enrollment periods that apply to those plans.

Job-based health insurance open enrollment periods are set by your employer and can happen at any time of the year. However, it's usually in autumn so the new coverage begins on January 1 of the next year.

Open enrollment in the individual market (on and off-exchange) has varied considerably over the last few years. Starting with 2018 coverage, the open enrollment schedule has settled at November 1 to December 15, with all plans effective January 1 of the coming year. So open enrollment for 2018 coverage began November 1, 2017 and ended December 15, 2017 (with extensions in ten states that operate their own exchanges). This is the same time frame that is scheduled to be used for future years as well. Open enrollment for 2018 marked the first time that enrollment ended before the start of the new year, and plan selections cannot be made after the year begins (prior to 2014, enrollment was available year-round in the individual market, but in most states insurers determined eligibility based on applicants' medical history, which meant people with pre-existing conditions could be denied coverage; that no longer happens, thanks to the ACA).  Learn more about open enrollment in the individual market.

Special Enrollment Is the Exception to Open Enrollment

Insurance plans that use an open enrollment system also have an exception that allows you to enroll outside of open enrollment under extenuating circumstances, frequently called life events. Known as a special enrollment period, this exception allows you to sign up for health insurance if you lost your other health insurance because you:
  • lost your job
  • moved
  • got divorced or married
  • became a widow or widower
  • aged off of a parent's plan
  • let COBRA insurance expired
  • have a new baby
You won't be eligible for a special enrollment period if you lost your other health insurance because you didn't pay the monthly premiums, though, or if you voluntarily canceled your prior coverage.

Note that although qualifying events and special enrollment periods in the individual market are similar to those that have long existed for employer-sponsored plans, they are not identical. Here's a guide that pertains specifically to special enrollment periods in the individual market, on and off-exchange.

What Types of Health Insurance Don't Use Open Enrollment?

Most health insurers in the United States use some sort of open enrollment program that limits sign-ups to a particular time each year. Here are some exceptions:

Medicaid, the state-based health insurance, doesn't limit enrollments to an open enrollment period. If you qualify for Medicaid, you can enroll at any time.

CHIP, the U.S. government's Children's Health Insurance Program, doesn't limit enrollments to a particular time, either.

Travel insurance isn't subject to open enrollment restrictions, either. Due to the short-term nature of travel insurance policies, they're not usually subject to open enrollment. However, some travel insurance companies restrict your ability to purchase a travel insurance policy to the period of time immediately after you book your travel.

Short-term health insurance doesn't use open enrollment periods either. Like travel insurance, short-term insurance isn't regulated by the ACA, and plans are available year-round in states that allow them. A new rule in 2017 limited short-term plans to no more than three months in duration, but that rule is expected to be reversed under new regulations that are under review by the federal government (the previous rules allowed short-term plans to exist for up to 364 days; those guidelines might be reinstated, or there might be a new rule altogether, but the three-month limit is almost certainly going to be eliminated).

In some cases, supplemental insurance products. Supplemental insurance plans sold to individuals are available year-round. But if your employer offers supplemental insurance, your opportunity to enroll will likely be limited to your employer's overall open enrollment period.

More Open Enrollment Opportunities

Most employers allow you to sign up for or change other job-based benefits during open enrollment, also. Generally, you're only allowed to make these changes during open enrollment. For example, you may be able to:
set up a flexible spending account or health savings account
sign up for, or adjust the amount of, life insurance, disability insurance, vision insurance, dental insurance, legal insurance, supplemental insurance benefits, etc.

Also Known As: annual enrollment, annual benefits enrollment

View Article Sources:
Department of Health and Human Services, Final Notice of Benefit and Payment Parameters for 2018. December 17, 2016.
Internal Revenue Service, Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited Duration Insurance. 2016
Norris, Louise. Guide to Special Enrollment Periods in the Individual Market. February 2017.
Office of Information and Regulatory Affairs, Office of Management and Budget. Short-Term Limited Duration Insurance (CMS-9924-P). Review concluded 2/7/2018.
On the Investment Horizon
Upcoming Key Dates on the Economic Calendar 

  • First Friday of each month: Unemployment report for the prior month, released at 8:30AM.

  • Monday, October 8: Columbus Day (observed) - NYSE open. 
  • Wednesday, October 17: Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM
  • Friday, October 26 at 8:30AM: GDP, 3rd quarter (advance estimate). 

  • Wednesday November 7 - Thursday, September 8: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Thursday at 2PM.
  • Monday, November 12: Veterans Day (observed) - NYSE open. 
  • Thursday, November 22: Thanksgiving Day - NYSE closed. 
  • Friday, November 23: Day after Thanksgiving - NYSE early close. 
  • Wednesday, November 28 at 8:30AM: GDP, 3rd quarter (second estimate); Corporate Profits, 3rd quarter (preliminary estimate).
  • Wednesday, November 28: Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM

  • Tuesday December 18 - Wednesday, December 19: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
  • Wednesday, December 19 at 2:30PM: Fed Chair Jerome Powell to hold his quarterly press conference to explain the FOMC's latest quarterly economic projections.
  • Friday, December 21 at 8:30AM: GDP, 3rd quarter (third estimate); Corporate Profits, 3rd quarter (revised estimate).
  • Monday, December 24: Christmas Eve - NYSE early close. 
  • Tuesday, December 25: Christmas Day - NYSE closed. 
  • Tuesday, January 1: New Years Day - NYSE closed.

If you desire an appointment, have any questions on any of this material, or any other financial subjects may relate to your own financial circumstance, please reach out to us at the contact information below:






Brian Cohen, CCO; email:; phone: 631-923-2487
Joe Favorito, CFP®; email:; phone: 631-930-5336

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