We invite you to watch the CJM Market Update as we discuss what happened in the third quarter of 2019 and our thoughts going forward. Jessica Ness, CFP®, a Senior Financial Adviser, talks with Kevin Donovan, CFA, our Portfolio Research Director about the S&P (briefly) hitting new highs while small and medium-sized companies were negative. They also discuss the rise in the bond markets, how technology stocks have done, and what the economic indicators may be telling us. As always, please be aware that this information is in no way specific advice or a recommendation.

Jessica Ness, CFP®
Jessica Ness, CFP®Senior Financial Adviser
Kevin E. Donovan, CFA
Kevin E. Donovan, CFAPortfolio Research Director

Jessica: Hello and welcome to CJM’s market update. I’m Jessica Ness, and I’m here with Kevin Donovan, our Portfolio Research Director to discuss what’s happened recently in the markets. Kevin, I understand the third quarter gave us a small gain in the S&P of about 1%. How did we get there? Was it as smooth of a ride as it sounds?

Kevin: Well, it wasn’t the most exciting way to end up at quarter, only up 1%, but there was a fair amount of volatility within the quarter. Early on in July, we actually hit an all time high in the S&P 500, but after that, there was a bit of a sell off and we were down about 6% in early August. The rest of the quarter, through August and September, was pretty much just recovering from that to try to get back to positive, which it did a little bit.

But you know, the S&P 500 only measures the 500 largest companies in the US, it doesn’t look at small or midsize companies, and they actually were negative for the quarter. If you look at international emerging markets, that was also negative for the quarter, so the S&P 500, the headline number was up, but everything else was down a little bit, so not a great quarter for equities.

Jessica: That’s interesting. We’ve also been hearing that besides the size of the company, the type of company has made a difference. Can you explain a bit more?

Kevin: Sure. You know, for most of this expansion, growth stocks like technology companies have really outpaced value stocks. The more traditional companies, the slow growing companies. In the third quarter that we just had, that shifted a little bit. Growth stocks are still way up for the year, but for the first quarter in a while we saw value stocks outperform a little bit. If you look at the real estate industry or the industrial sector, they actually are up fairly large amounts so far this year.

Technology stocks lead, and they’re 30%, but right behind them are real estate stocks also up around 30%, and utilities are up about 25%. The reason for that is that they are very good dividend paying companies, so when you have bond yields going down like they were this year, and we’ll talk about in a minute, the value of those dividends become greater for investors, so they move into those higher dividend paying companies.

Jessica: That makes sense, and we’ll certainly take those gains so far year to date.

Kevin: Right.

Jessica: So shifting over, you mentioned the bond market. What has been going on there in the last quarter or so?

Kevin: Well, just going back even a little further this year, the Fed has decided to start cutting interest rates again. So that pushes bond yields down, which pushes bond prices up, so it’s good for bond prices. In addition to that, we’ve had international economies or international central banks go into a negative interest rate environment. International investors can’t get any money off their own investments in their own bond markets, so they’re coming into the US, and when they invest in the US that pushes bond yields down even further, and that is a supporter of bond crisis. That is something that’s probably going to continue in the near future.

Jessica: Well, great. Well, we’ll take the stock gains year to date certainly, and we’ll enjoy the bond gains as well. But in a lot of my client meetings, while all these positive things are happening, we’re talking a lot about some concerns in the markets, concerns with the economy and markets going forward. What are your thoughts there?

Kevin: Yeah, we’re starting to see some mixed economic indicators. We’re starting to see some manufacturing supply numbers come in a little softer than expected, but there are very strong areas in the economy as well, like unemployment is very, very low, near historic lows. That’s a positive. Trade concerns are an issue, both for US markets and for international markets, and this quarter we’re expecting to see lower corporate earnings.

Now, all these factors we’re not panicking about. That’s the reason why we have a diversified portfolio. We invest in stocks and bonds, so if one under-performs, another will kind of pick up the slack. So we’re not too concerned about it, but those are three areas that we are looking at and keeping a close eye on as we enter the last quarter of the year.

Jessica: Well, I appreciate that, Kevin. Thank you for sharing your thoughts. We appreciate you tuning in today, and from CJM Wealth Advisers, in a world of right now, we plan for what’s ahead.