This past week we experienced a 4.6% decline in the US stock market. Foreign stocks fared better with a 2.06% decline. With the US market is down over 10% since late September, about half of the recent loss occurred just last week.
Earlier this month I had the opportunity to attend the 29th annual SRI Conference in Colorado Springs, Colorado. The SRI Conference is the premier annual gathering of sustainable, responsible, and impact investment professionals working to direct the flow of investment capital toward a truly sustainable future.
Over the past few weeks the focus of our weekly posts has been on the volatility in the global equity market. We have sought to provide some insight into what’s driving global stocks lower and provide perspective on how frequently drawdowns like the one we are currently mired in occur. We hope these insights and perspectives have been valuable for you and helped to give you peace of mind.
It goes without saying, this has been a challenging year for investors. Every asset class has experienced significant loss at one point or another – International Equities, US Bonds, and recently, US Equities. As much as we say uncertainty and risk of loss is the cost of realizing long-term capital returns, times like this can make even the most rational long-term investor fear the future.
After a long stretch of relatively calm and steady stock market gains, volatility has reared its ugly head over the past four weeks. Last week we detailed how interest rates have contributed to the recent stock market slump. While interest rates may be the driving force behind the quick and dramatic drop in stock prices, there are other factors at play. Trade tensions between the U.S. and its global trade partners are running high. There is uncertainty around the upcoming midterm elections. There is nervousness as companies are beginning to announce third quarter earnings. Housing sales are starting to slow. Geopolitical pressures are mounting in light of the murder of Jamal Khashoggi in Saudi Arabia. All of these issues have played a role in the recent market volatility that has seen the S&P 500 decline in 15 of the 19 trading days in October.
Last year, there were eight trading days where the S&P 500 moved up or down by at least one percent. So far this year, there have been forty-one such trading days. Further, five of the last eight trading sessions have seen the S&P 500 move up or down by at least one percent. With the recent volatility in the stock market has some asking what’s next for the stock market and the U.S. economy.
Last Wednesday, October 10th, U.S. stocks suffered their worst losses in eight months. The Dow Jones Industrial Average declined 3.2% and the S&P 500 declined 3.3%, both notching their worst losses since February 8th. The S&P 500 also posted its first six-day losing streak since November 2016, although a bounce back on Friday stopped that slide.
Last November I was rear-ended on my drive home from work. I was stopped at a red light when the driver behind failed to stop. Luckily, I was not injured in the accident, but it was scary nonetheless. Less than one month later, I was driving down the highway to return the rental car I needed while my car was at the body shop getting repaired and I was once again rear-ended. Not being at fault, I was lucky to escape the accident with no physical injuries.
Exchange-traded products (ETPs) have been lauded by investors and investment professionals for helping to democratize investing. The most popular type of ETP is the exchange-traded fund, better known by its acronym ETF. Exchange-traded notes (ETNs) are a lesser known type of ETP. ETNs differ from ETFs in that ETNs don’t hold underlying securities, like stocks or bonds. Rather, they are unsecured debt instruments issued by a bank that promises to pay the performance of an underlying investment, typically an index or basket of securities.
On September 21, 2018, the Global Industry Classification Standard (GICS) sector structure will experience the biggest change in its history. Specifically, the Telecommunication Services sector will be broadened to include companies from the Consumer Discretionary and Information Technology sectors and renamed Communication Services.
When the closing bell rang on Wednesday, August 22, 2018, many media outlets were quick to celebrate the longest bull market in United States history. However, there are many investment professionals and historians who beg to disagree with this notion. You’re probably asking yourself how can there be a disagreement on whether this bull market is the longest ever? It either is or isn’t. It’s black or white. Day or night. Unfortunately, it’s not that simple.
General Electric has long been one of the most prestigious companies in the United States. In fact, General Electric is the only one of the original twelve members of the Dow Jones Industrial Average created in 1896 by Charles Dow still around today. This speaks to the company’s ability to innovate and adapt.
Since the start of the U.S. stock bull market following the Great Recession in 2009, consumer discretionary and technology have been the best performing sectors of the S&P 500. In the first half of 2018, that trend continued. It is not uncommon for market sectors to experience long periods of strong performance, but what has some in the financial media buzzing is that the same handful of technology companies continue to be among the best performers.
China is one of the fastest growing economies in the world and is home to some of the best-in-class businesses, particularly in the technology industry. However, most investors domiciled outside of China have had limited access to these Chinese companies. China’s capital markets are not fully open to foreign investors because the Chinese government does not allow the free flow of capital into or out of mainland China.
Sector investment strategies have been around for decades and the proliferation of exchange-traded funds, or ETFs, have made these investment strategies available to the masses at a relatively low cost. The problem with sector investment strategies is that while businesses change with technological advancements, the traditional sector classification system has remained unchanged.
I am not a fan of basketball, but one story this year caught my attention. The Philadelphia 76ers, who were far and away the worst team in the National Basketball Association over the past few seasons, surprised many fans and basketball insiders alike when they won 52 games en route to the number 3 seed in the Eastern Conference playoffs. For the 76ers players and fans, the mantra “trust the process” served as a rallying cry for the team throughout the season and into the playoffs.