Inter- and intraday volatility was a far too common occurrence this quarter—the market swung in both directions on an almost daily basis, but the swings were fortunately relatively range-bound. Quarter-end was an accurate portrayal of this range-bound volatility, with the S&P 500 Index settling out at +1.7%.
“In the middle of 2018, I said that the more things changed, the more they seemed to stay the same. That was not the case for July through September of this year. “
In reversing some of the steadier seas seen in the first quarter, the second quarter of 2019 marked a return to a volatile environment more closely resembling the tail end of 2018. Despite a peak-to-trough decline in the S&P 500 in May (by about 7%), little changed in aggregate as markets subsequently recovered and ended the quarter up just under 4%.
About mid-June I received an interesting question from a colleague at Howe & Rusling—one that probably could have come at any point over the past few months, but with the end of the quarter looming, it seemed the perfect time.
The first quarter of 2019 was certainly easier to stomach than the one prior in which we experienced a dramatic sell-off to finish 2018. Refreshingly, the S&P 500 Index finished the first quarter up over 13%, recouping nearly all of its losses from the fourth quarter (although it hasn’t quite cut through its 2018 high of 2929.67). This was actually the market’s best start to a year since 1998—and every sector brought in positive returns. Market performance is just one piece of the puzzle, though, so we look to the economic backdrop and the behavior of monetary and political policy makers to get a true pulse on things.
The fixed income markets certainly started off 2019 on the right foot. To use an old saying generally reserved for the month of March (though this is a quarterly commentary), the first quarter came in like a lion. The first two weeks of 2019 saw 10-year Treasury yields jump by over 20 basis points. And the first quarter went out… like a lion. Following the volatility that we saw in the last quarter of 2018 in risk assets (equities and non-Treasury securities) and the resulting flight to quality, the Federal Reserve’s attempt at calming the markets had an over-sized effect of sending them in the opposite direction.
What a way to end a year. As the third quarter was ending, it seemed everyone was expecting yields to continue the slow ascent for the final three months of 2018.
And good riddance to what turned out to be a very difficult year for the markets and investors. There was essentially nowhere to hide. Of the 15 major asset classes (everything from US large caps to emerging market stocks to high yield bonds to gold), US cash equivalents was the only one to finish the year with positive returns. Likewise, the 25 largest equity ETFs were all down for the year, with almost half of the funds down double digits. Only 3 of 48 country ETFs posted positive returns for the year! And for the S&P 500 index in particular, the last quarter of 2018 was one of the ten worst fourth quarters since 1929.
Despite some occasional faltering and vulnerability this quarter, major US stock indexes are still boasting decent gains for the year. But a quick look at the Federal Reserve, the bond market, and growth prospects across the globe tell us to at least take heed as we head into the last quarter of 2018 and look ahead to next year.
Finishing the third quarter, we can all look back and remember it has been ten years since the financial crisis and the beginning of the Great Recession.
