Perspective, Provided

A Guided Path Informs Your Decisions

September 7, 2018 |

U.S. economic data releases continue their impressive trend of matching or beating estimates. Unemployment remains low, inflation has been modest, and GDP growth is strong. In fact, GDP growth was revised upward to an annual rate of 4.2% in the second quarter—the fastest pace of growth seen in almost four years. 

Shrugging off ongoing trade discussions, the S&P 500 climbed to all-time highs in the month of August and ended the month up nearly 10% on a year-to-date basis. Small U.S. companies have also been bright spots, posting impressive year-to-date gains of 14%.

Many currencies have depreciated relative to the U.S. dollar so far this year, reducing returns for U.S.-based investors. In particular, several EM currencies have been impacted amid trade uncertainty, U.S. economic growth, and rising U.S. interest rates. The Turkish lira and Argentine peso stand out especially, both down about 25% versus the dollar in August alone. Argentina was forced to request an emergency bailout of $50 billion from the IMF to help support its currency and finances. In local currency terms, returns don't look quite as bad. The MSCI EM Index is up 4.7% over the past twelve months, compared to -0.7% in U.S. dollar terms.   

The market is anticipating another 25 basis point rate hike by the Federal Reserve at their upcoming September meeting.

August 6, 2018 |

July saw positive returns across the major indices with the S&P 500 leading the way, up 3.7% during the month, supported by a strong earnings season. An impressive 80% of S&P 500 companies that have reported Q2 earnings so far have beaten estimates, compared to a 67% historical beat rate.

The U.S. economy powered ahead in Q2 with GDP growing at an annualized rate of 4.1%, the highest growth rate since 2014. Increases in consumer spending, exports, and business investment helped to fuel the growth. Economic data remains strong and continues to signal further expansion.

Overseas GDP growth has been less exciting. The Eurozone grew at a 1.4% annualized rate in Q2, weighed down by waning business optimism as uncertainty over trade tensions lingered. Despite the slower rate of growth, European equities delivered positive returns over the month. Strong earnings and cheaper valuations have cushioned the impact of trade threats.

While President Trump has eased his stance on tariffs for car imports from Europe, negotiations continue between the U.S. and China. Ongoing discussions are likely to increase market volatility over the near term.

July 18, 2018 |

Summer is the perfect time to grill and chill, and catch up on your reading list while catching rays at the beach.  The best summers, like the best books, are fun and full of discovery, so we’ve carefully selected 12 favorites we believe you will enjoy reading.  

Having deep experience serving as family wealth advisors, we know parents often worry about their children having the financial literacy and money management skills needed to make good decisions and lead productive, successful lives.  Empowering the next generation is one of our top priorities as financial advisors.  We frequently work with clients’ children—from youngsters up to early adulthood—to instill confidence and independence, to provide guidance and equip them with the financial acumen to carry on the family legacy. In that spirit, our summer reading list includes books that can engage and foster family communication as well as provide valuable insights.

This baker’s dozen are great reads—engaging, informative and well-written—and some are also available as audiobooks and on Kindle.

Happy reading!

July 17, 2018 |

Tucked away in the 1,000+ page Tax Cuts and Jobs Act, is a very interesting section on something called “Opportunity Zones.” Seemingly overlooked due to some of the headline-grabbing changes to income tax rates and deductions, the creation of Opportunity Zones has begun to generate buzz not only in the tax planning world, but also the Environmental, Social and Governance (ESG) community. Given our interest in both areas, we took a deeper look. This paper explores the tax benefits, positive social ramifications, and potential investment opportunities of the Opportunity Zone program.

June 14, 2018 |

Small U.S. companies were leaders in the month of May, up more than 6%. Growth companies within the U.S. and abroad continue to outperform their value counterparts, as the Technology sector (+7.4%) had another strong month of returns.  U.S. equities have been supported by an economy that continues to grow at a moderate pace with strong manufacturing and low unemployment, down to 3.8%, which is the lowest level since the 1960's. Non-U.S. equities faced headwinds over the past month. Continued tariff rhetoric has spoked fears of an escalating trade war. Political concerns in Italy, which caused some to question the future of the EU, have been eased for now as a deal to form a coalition government was agreed upon. Emerging Markets were dragged down by Argentina, Brazil, and Turkey. Recent dollar strength and rising U.S. rates have put pressure on dollar denominated EM assets, causing concern that certain countries might have difficulty paying back dollar denominated debts. The next meeting of the Federal Reserve FOMC is scheduled to begin on June 13th, and arkets expect another 25 basis point increase in the federal funds rate.

May 4, 2018 |

The U.S. economy expanded at a 2.3% annual rate in the first quarter. While this beat analyst expectations, growth was at a slower pace compared to the 2.9% rate seen in Q4 2017. The economy continues to plod along with consumer sentiment elevated and unemployment low. Yields across the curve continued to increase and the 10-year Treasury crossed the 3% mark in April for the first time since 2014. Expectations of increasing inflation pressures have pushed yields higher so far this year with rates up around 0.5% from year end. Earnings growth for members of the S&P 500 have been strong so far this year. With just over half of members reporting results, 79% of companies have beaten EPS expectations. The market response so far, however, has been muted. Oil prices surged over the past two months, partly due to falling inventories and continued strong demand from a growing global economy. OPEC extended their production cuts which should also support higher prices over the near term. Increasing oil prices have helped fuel a rebound in energy associated companies, with the S&P 500 Energy sector up over 9% in April.

May 1, 2018 |

The first quarter of 2018 was tough for investors. After a relatively calm 2017, where it seemed like the momentum of investment returns could not be stopped, volatility made a comeback causing most major indices to finish negative for the quarter. Both the S&P 500 Index and the Bloomberg Barclays US Aggregate Bond Index (Agg) finished the first quarter of 2018 with negative total returns, in part due to rising interest rates, inflation scares, and tariff talks.

While volatility can create an uncomfortable environment, what’s worse is when investors feel like they have nowhere to “hide” and both stocks and bonds decline in value. Looking back over the past 30 years, it is actually a rare occurrence for both the S&P 500 and Agg to have negative returns in the same quarter in part because stocks and bonds have experienced low to negative correlation, at least this has been the case recently. In fact, Q1 2018 was the first time since the third quarter of 2008 where both indices had negative total returns in the same quarter. In the past 30 years this has only happened eight times!

In response to the markets’ recent behavior we took a deeper dive into the data to review how these two asset classes have behaved in relation to one another historically by comparing the monthly returns of the S&P 500 to the Agg. Our concern was that the diversification benefits of stocks and bonds might have diminished, leading us to question whether bonds will be a reliable hedge for equities over the next few years as the Fed continues down the path to normalize monetary policy. Historically as investors have become fearful and sold equities they have flocked to bonds as a safe haven. With a muted return outlook and continued rising rates on the horizon this may not be the case over the next few years. 

March 7, 2018 |

The month of February started with a changing of the guard as markets sold off and volatility made its way back into the conversation. The S&P 500's run of consecutive positive monthly total returns came to an end, though markets still remain in positive territory for the year. U.S. government bond yields increased across the curve. Congress passed a two year budget deal that will raise government spending following the passing of the $1.5 trillion tax cut. Fears of inflation pressures picked up with strong wage growth reported and unemployment remaining low. Investors have linked increased inflation fears as one of the triggers causing the market sell off earlier in the month. A more hawkish tone from the Fed's new leader, Jerome Powell, is causing some forecasters to now expect four rate hikes in 2018 compared to three previously assumed. Stimulative fiscal policy continues to lead Fed officials to report that the economic outlook remains strong. Further rate hikes could cause additional market volatility as the Fed works to deter the economy from overheating. A 25 basis point rate increase is expected in March.

February 12, 2018 |

China for many centuries was the World’s largest economy until the United States bumped it from its pedestal.  In the near future it is likely that China will regain its title of largest economy in the World.

We believe the construction of the World indices may be causing investors to have a truly underweight position to China.  Just like any investment, we must consider the return potential and the risks.  For investors that can get to know the risks of investing in China, they will better be able to determine the risk/reward payoff and will likely be at an advantage relative to most.

February 5, 2018 |

In light of recent market activity, Pathstone’s Chief Investment Office is sharing the enclosed market update.

February 1, 2018 |

Equity markets got off to a fast start in January with most major indices rising. The S&P 500 Index posted another month of positive total returns, the 15th month in a row. U.S. GDP grew by 2.6% in Q4, lower than the 3% consensus expectation. Consumer spending and business investment in equipment were both strong, however, inventory drawdown and net imports both weighed on growth. The 10-yr Treasury yield increased to 2.7%, its highest level since April 2014. Despite this increase the yield curve still remains relatively flat. International and Emerging Market equities continue to benefit from strong global economic growth. Further weakness in the U.S. dollar has also boosted returns for domestic investors. As expected, on January 25, the ECB announced that they would maintain current monetary policy. Mario Draghi, President of the ECB, said he sees “very few chances” that interest rates will be raised this year. Low rates and solid economic momentum should continue to be supportive for Euro area equities. Within the U.S., the Federal Reserve maintained the Federal Funds rate at current levels. The next meeting is scheduled to begin on March 20th.