Investment Commentary – October 2, 2018

Year to Date Market Indices as of Market Close October 2, 2018
Dow 26,773 (8.31%)
S&P 2,923 (9.34%)
NASDAQ 7,999 (15.99%)
Gold $1,207 (-9.18%)
OIL $75.09 (28.53%)
Barclay Bond Aggregate (-1.69%)
Fed Funds Rate 2.25% (last increase was 9/26/18)

Dow closes at record for the 14th time in 2018 even as trade fears simmer

The Dow Jones Industrial Average rose for a fourth straight session on Tuesday, logging its 14th record close of 2018, even as the broader market fell on lingering trade worries.

But the market’s recent strength on the back of a robust domestic economy underscored the divergence in U.S. stocks versus global equities as concerns over a variety of potentially disruptive events abroad prompted investors to focus on the U.S.

How did major benchmarks fare?

The Dow DJIA, +0.46% climbed 122.73 points, or 0.5%, to finish at 26,773.94. The blue-chip average hit an all-time intraday high of 26,824.78, supported by gains in major industrial stocks like Caterpillar Inc. CAT, +1.67% and Intel Corp. INTC, +0.10%

However, the broader S&P 500 SPX, -0.04% slid 1.16 points to 2,923.43 as consumer discretionary stocks lost 1.4% and the Nasdaq Composite Index COMP, -0.47% shed 37.75 points, or 0.5%, to 7,999.55.

JP Morgan Thought of the week
The tug of war between politics and fundamentals continued in the third quarter. U.S. equities continued to perform well, harnessing momentum from strong U.S. growth and profits, but in a reversal from last quarter, U.S. large cap led with a return of 7.7%, versus 3.6% for small cap. Although domestically oriented small cap stocks may have benefited from trade tensions in the second quarter, large cap stocks are still enjoying boosts from the tax cuts. EM equity struggled to a lesser degree than in 2Q18, but still declined -0.9% as shocks in Turkey and Argentina were met with rate hikes, which echoed across other emerging markets in response to weakening currencies against the U.S. dollar. Turning to fixed income, the Federal Reserve raised the  federal funds rate for the third time this year, prolonging a challenging environment for bonds. U.S. core fixed income was flat, and the U.S. 10-year Treasury yield rose 20 basis points over the course of the quarter. Global high yield, however, was more resilient, returning 2.0%. Commodities were the laggard of the pack, returning -2.0%. Looking to the remainder of 2018, trade tensions and political risks could prevail, causing higher volatility and increasing the importance of a balanced and diversified approach to investing.

Around the web
Rate rise: As expected, the U.S. Federal Reserve raised its benchmark short-term interest rate to the 2.00%–2.25% range, outpacing inflation for the first time in a decade. This marks the third increase this year and the eighth since late 2015. It’s the first time since 2008 that the benchmark rate has been above 2.00%.

Solid September: With its 0.4% gain in September, the S&P 500 has now risen for six months in a row. The Dow added nearly 2% in September to record its fourth straight positive month, but the NASDAQ fell slightly, snapping a five-month string of gains.

4 more in store: The latest projections from Fed board members indicate that a majority currently foresees one more interest-rate increase this year—in December—and three more in 2019. Eventually, the rate could rise slightly above 3.25% by 2020—a level that’s considered a deliberate restriction on economic growth in the interest of controlling inflation.

Other Notable Indices (YTD)
Russell 2000 (small caps) 9.97
EAFE International -1.60
Emerging Markets -9.67
Shiller Annuity Index 16.12

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.

https://www.marketwatch.com/story/stock-futures-fall-trade-and-italy-remain-in-focus-2018-10-02
https://am.jpmorgan.com/blob-gim/1383452890099/83456/weekly_market_recap.pdf?segment=AMERICAS_US_ADV&locale=en_US