We, at Beacon Financial Strategies, believe strongly that the most effective investment strategy is one that is developed within the context of a financial plan and customized to meet your personal risk profile and return requirements. Click here to learn more about our investment philosophy.
Research has proven time and again that it is impossible to consistently time the financial markets, by exiting before trouble arises and re-entering just before the “all clear” signal. Nevertheless, we believe it is important to stay abreast (if you like) of recent market history because understanding shorter term market movements, can give you the confidence to stick with your long term investment plan.
Fourth Quarter 2018 Index Data
The following table should give you an idea of how the financial markets have performed over the last 3 months. While it may be interesting to look at very short term investment performance, we believe the value of this table lies in the “Best Quarter/Worst Quarter” performance information. It’s easy to see, when looking at the “Worst Quarter” row that there is a definite correlation between the amount of investment risk assumed and the magnitude of possible negative performance.
US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index ), Global Real Estate (S&P Global REIT Index), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citi WGBI ex USA 1−30 Years [Hedged to USD]).
How Did the Financial Headlines Impact Stocks?
The following chart shows the movement of the MSCI All Country World Index (an index that measures stock performance globally) over the course of the last twelve months. You will note that there are also a number of the major news headlines that may have impacted stock performance.
Domestic Stock Performance
In terms of the performance of stocks, the US equity markets have provided a negative performance in the short-term, but a positive performance in the long-term.
You will note that there was wide disparity between those stocks that are considered “Growth” (normally stocks in sectors like technology, healthcare, etc.) and those that are classified as “Value” stocks (normally stocks in sectors like financials, energy, etc.). Find below, performance data for various categories of US Stocks:
Domestic Stock Index Data: Large Cap (S&P 500 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index)
International Stock Performance
In US dollar terms, developed markets outside the US under-performed the US but outperformed emerging markets during the second quarter. Value under-performed growth in non-US developed markets across large and small cap stocks and small caps under-performed large caps in non-US developed markets.
International Return Data: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USA Growth).
Fixed Income (Bond) Performance
Interest rate changes across the US fixed income market were mixed during the fourth quarter of 2018. The yield on the 5-year Treasury note declined 43 basis points (bps), ending the quarter at 2.51%. The yield on the 10-year Treasury note decreased 36 bps to 2.69%. The 30-year Treasury bond yield decreased 17 bps to finish at 3.02%. For 2018, yields on the 10-year Treasury and 30-year Treasury increased 29 bps and 28 bps, respectively.
In terms of total returns, short-term corporate bonds increased 0.78% during the quarter. Intermediate-term corporate bonds had a total return of 0.58%.
Total returns for short-term municipal bonds were 1.10% for the quarter. Intermediate-term municipal bonds returned 2.00%.