QUARTERLY MARKET UPDATE

The U.S. stock market remained resilient over the last quarter, as two of the best three months of 2018 occurred over the summer. The months of July and August both added over 3% to the S&P 500. After a slight consolidation in early September, the markets rallied on anticipated good earnings and ended the month with positive gains. Overall, Q3 was the best quarter for the U.S. markets this year.   

Economic fundamentals remain strong as one of the longest bull markets in history climbs a “wall of worry.” GDP growth continues to rise above levels we haven’t seen in several years, unemployment fell below 4% in September, and consumer confidence remains at levels not seen since 2000. Wage inflation reported last month was the highest in years, as the job market continues to tighten. The positive economic environment faces several challenges including rising interest rates, trade and tariff concerns, and mid-term elections. We believe these concerns and headwinds will keep the growing economy in check from detrimental inflation.  

The Federal Reserve raised rates by 25 basis points in September, the third rate hike this year. The committee reiterated their positive assessment of the U.S. economy and removed the accommodative language from their statement. Another interest rate hike is anticipated this year with several more expected next year. The Federal Reserve remains aware of the potential economic risks and are willing to reevaluate their outlook and time table if needed.

Healthcare, technology, and consumer discretionary sectors lead the U.S market higher while the defensive sectors underperformed. 

The third quarter was the best quarter for healthcare in several years. This comes as consumers realize the positive impacts of the strong economy and become more willing to utilize healthcare and engage in life-changing treatments.

Technology remains the dominant driver of this bull market. As innovation continues to advance, tech companies are capturing additional consumer and corporate spending. Apple and Amazon both hit $1 trillion in market cap, providing additional momentum for both stocks. We believe consumer-oriented sectors will continue to lead the market through the holiday season.

The energy sector is also higher for 2018 as the price of oil has steadily increased over the past year and now trades comfortably over $70/barrel. We expect oil prices to continue to gradually increase as the global economy expands and the U.S. prepares to impose sanctions on Iran in the next couple months.

Looking ahead, we anticipate strong consumer spending through the close of the year. Consumers seem to be willing to spend on lifestyle enhancements as wages tick up and consumer confidence continues to be robust. In addition, we believe corporate earnings will remain strong as the tax cuts take effect and create a greater competitive edge for U.S companies. During this past quarter, 80% of the earnings reported by S&P 500 companies beat earnings expectations.

Despite the robust U.S economy, there are several headwinds in the U.S. economic outlook. Trade tensions, political turmoil in Washington, and rising material costs could negatively impact the markets. The international markets remain under pressure as trade tensions, the strong U.S. dollar and foreign debt issues weigh on the global markets.

We remain cautiously optimistic on the U.S. equity markets for the balance of the year. We anticipate the healthy U.S. economy and strong consumer confidence to be the defining force for the fourth quarter.

As always, please don’t hesitate to give us a call with any questions.