October 05, 2016
Dear Friends, Our 3rd quarter market review is below. Despite a bumpy ride for investors, markets have been up modestly year to date. The economy continues to grow, albeit at a rate below what any of us would like to see, and unemployment remains below 5%; good news for the consumer. The consensus outlook for the near term is for increased volatility due to political uncertainty and the likelihood of a Fed rate increase in December. Due to these factors and slightly above average valuations, we see an elevated risk of a selloff or correction in the domestic stock market in the near term. Having said that, we believe that after the election, markets will be driven more by the business cycle and macroeconomic conditions than by who gets elected President. Therefore, we would not be tempted to make major tactical trades or asset allocation decisions based on the election. Please let us know if you have any questions or comments or if there is anything we can do for you. Matt and Andrew
Key Dates/Data Releases
10/3: PMI Manufacturing Index, ISM Manufacturing Index
10/5: International trade
10/7: Employment situation
10/13: Treasury budget
10/14: Producer Price Index, retail sales
10/17: Industrial production
10/18: Consumer Price Index
10/19: Housing starts
10/20: Existing home sales
10/26: International trade in goods, new home sales
10/27: Durable goods orders
10/31: Personal income and outlays
Quarterly Market Review: July-September 2016
The second quarter provided a bumpy ride for investors. Following the upheaval caused by the Brexit vote in June, July kicked off the third quarter by ending the month in favorable fashion, as each of the indexes listed here posted month-to-month gains, led by the Russell 2000 (5.90%) and the Nasdaq (6.60%). Stocks held their own for July, despite falling energy shares, as crude oil prices (WTI) sank from around $49 per barrel to under $42 by the close of July. As money moved into equities, bond yields remained on the low side as the yield on 10-year Treasuries remained below 1.60%, closing July at just about where it started at 1.45%.
The dog days of summer saw light trading in August, but that didn't stop the markets from moving sharply. By the middle of the month, the Dow, S&P 500, and Nasdaq had surged to all-time highs — the first time since 1999 that all three indexes reached a new high at the same time. Yet by the end of August, each of the indexes listed here saw their values fall back to about where they were at the beginning of the month. The large-cap Dow and S&P 500 fell ever so slightly from July's closing values, while the Russell 2000 and Global Dow posted modest gains for the month. Crude oil fell below $40 per barrel during the month, but rebounded to close the month at about $45 per barrel. Bond prices fell as the yield on 10-year Treasuries reached 1.60%.
For the month, September ended about where it began for equities. Of the indexes listed here, there was relatively little movement during the month, except for the Russell 2000 and the Nasdaq, each of which posted gains for the month close to or over 1.0%. Overall, the third quarter proved to be a good month for stocks as the indexes listed here posted notable gains, led by Nasdaq, the Russell 2000, and the Global Dow. Long-term bond yields measured by 10-year Treasuries hovered around 1.60% for September, closing the month and quarter at 1.59% — just about where they ended the second quarter. Gold lost value, closing the second quarter at $1,318.80, down from its June closing value of 1,324.90. Crude oil (WTI) ended the second quarter at about $48.59 per barrel, just about the same price it ended the third quarter ($48.05).
As of September 30
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Volatility best described the U.S. stock market over this past summer. However, September saw some positive gains overall in equities as the employment sector and consumer spending were positive developments as was news that the Fed would not be raising interest rates during the month. The FOMC doesn't meet in October, so changing interest rates are not an issue. However, October is particularly important as economic trends for the month will influence the course of action taken by the Fed when it meets again in November.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.
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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Childs Company shares an office with Childs Advisory Partners, an unaffiliated firm. Kestra Is and Kestra AS are not affiliated with Childs Company or Childs Advisory Partners. Kestra IS and Kestra AS do not provide tax or legal advice and are not a Certified Public Accounting (CPA) firm.
This communication is strictly intended for individuals residing in the state(s) of GA. No offers may be made or accepted from any resident outside the specific states referenced.
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