Third Quarter 2018 Executive Summary

U.S. stocks are near record highs as we enter Q4 2018. All three major indexes ended the quarter within ~1.0% of their all-time highs, with the S&P 500 gaining 7.2% (its best quarterly performance since 2013), the DJIA gaining 9.0% and the NASDAQ rising 7.1% for the quarter. The general consensus is that the economic outlook remains bright; however, hurdles inarguably exist. The mere longevity of the current bull market, the longest in history, has some investors feeling jittery.

Markets are abuzz with talk of potential obstacles including inflation, trade tensions and a potential mid-term election partisan shift ... much of it amounts to white noise. As always, it’s important to focus on fundamentals and keep things in perspective.

With the Fed’s recent rate increase (the third increase this year), once again there’s talk of inflation. But at 2.25%, rates remain at historical lows, significantly mitigating the risk of anything more than moderate inflation.

Markets await the impact of investor speculation on how shifts in the balance of power in Washington could impact fiscal policy and foreign relations. While we are likely to experience some volatility, it should level off once the uncertainty passes.

Trade war? During Q3 2018, trade tensions continued to escalate, but you wouldn’t know it by looking at U.S. stock markets. And while trade fears will linger heading into year-end, we expect the market to be held up by strong fundamentals.

The U.S. continues to enjoy strong corporate earnings, robust economic growth, improving wages, high consumer confidence, moderate inflation and low unemployment – all of which should help to sustain growth for the long term. 

• Earnings Growth. Analysts estimate Q3 2018 earnings by companies in the S&P 500 will increase by 20% from last year. That would be the third-fastest quarterly growth rate ever, trailing only the two previous quarters.
• Gross Domestic Product. Real GDP grew at an annual rate of 4.2% for Q2 2018, the highest since 2014, and Q3 estimates are indicating annual growth of 5.0%.
• Unemployment. The latest released results (09/26/2018) show U.S. unemployment holding steady at 3.9% for the last two months, near an 18-year low.
• Consumer Price Index (CPI). The CPI-U (CPI for All Urban Consumers) rose 0.2% in August, seasonally adjusted. For the 12-months ending August 2018, the CPI-U rose 2.7%, increasing from 1.7% for the same period last year.
• Consumer Confidence. The Consumer Confidence Index rose to 138 during Q3 2018, its highest level in nearly 18 years. Most Americans expect the economy to remain healthy in the coming months, according to the Conference Board’s consumer confidence survey.
• Housing. Housing starts were down 4.9% for the three months ending August 2018, (a year-over-year increases are slowing the housing market.

Trick or Treat? For those of us old enough to remember, October brings the ghosts of stock-crashes-past to keep us awake at night (1987, 1997 and 2008); however, over the past twenty years October has historically been good for stocks, with the DJIA finishing the month higher 70% of the time. One thing is certain, at CORE we refuse to be spooked and will adhere to our long-term investment strategies – a process designed to help provide peace of mind to our clients throughout even the spookiest market cycles. 

Double, double toil and trouble; Fire burn and caldron bubble. – Shakespeare’s Macbeth  

U.S. Market Performance

Executive Summary Sources:

https://www.marketwatch.com/story/us-stocks-dominated-in-the-third-quarter-one-of-the-strongest-in-years-2018-09-28 (September 28, 2018)
https://www.wsj.com/articles/u-s-stocks-open-fourth-quarter-near-record-highs-but-face-hurdles-1538316001 (September 30, 2018)
https://www.wsj.com/articles/italian-budget-weighs-down-european-stocks-1538120267 (September 28, 2018)
https://www.cnbc.com/2018/09/28/us-markets-political-turmoil-and-data-take-center-stage.html (September 28, 2018)
https://www.bea.gov/news/2018/gross-domestic-product-2nd-quarter-2018-third-estimate-corporate-profits-2nd-quarter-2018 (September 27, 2018)
https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_092818B.pdf?hsCtaTracking=31d0f4 88-5c02-4193-b93b-f1708067f4fa%7Cb994622e-6b82-4c98-ad34-76c848088314 (September 15, 2018)
https://data.bls.gov/timeseries/LNS14000000 (September 26, 2018)
https://www.bls.gov/news.release/cpi.nr0.htm (September 13, 2018)
https://www.bls.gov/news.release/archives/cpi_09142017.pdf (September 14, 2017)
https://www.conference-board.org/data/consumerconfidence.cfm (September 25, 2018)
https://www.census.gov/construction/nrc/pdf/newresconst.pdf (September 19, 2018)
https://www.nasdaq.com/article/weekly-market-preview-third-quarter-earnings-on-tap-is-octoberphobia-time-for-panic-cm1030124 (September 30, 2018)
https://www.census.gov/econ/currentdata/dbsearch?program=RESCONST&startYear=2016&endYear=2018&categories=APERMITS&dataType=T OTAL&geoLevel=US&adjusted=1&submit=GET+DATA&releaseScheduleId= (September 26, 2018)
Morningstar.com, DOW, S&P500 and NASDAQ index charts 12/31/2017 to 09/30/2018

The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.