The third quarter of 2019 seemed like a textbook case of information overload. There were political headlines concerning international trade policy, economic headlines concerning fundamental factors, and fiscal/monetary headlines concerning interest rates, all of which played a role in this quarter’s ups and downs. In most cases these headlines were distractions from strong profits and steady consumer spending, both fundamental to stock valuations. The year-to-date gain for the S&P 500 was 20.55%, extraordinary performance which is not likely to continue. International equities remain relatively undervalued when compared to U.S. stocks. The MSCI EAFE Index was down slightly for the quarter, likely as the result of continued trade tensions, but was up 12.80% for the year-to-date.
At the September meeting, the Federal Reserve cut its target rate for federal funds by 0.25%, citing global developments and muted U.S. inflation. Analysts are projecting another rate cut before the end of the year. The Bloomberg Barclays Capital Aggregate Bond Index had a year-to-date gain of 8.52%.
Although we are watchful of the current (and relatively normal) volatility, our overall investment strategy remains unchanged. We practice a goal-based investment approach to achieve financial objectives. Lower current valuations can feel painful, however they are ultimately immaterial for the long-term investor.
As you may know, sustainability and impact investing have been important factors in the investment world. If this is something you’d like to learn more about, please let me know. This quarter two events occurred which reinforced a shift in business tactics to a more sustainable and equitable future.
For decades, companies have prioritized shareholder profits and have relied on products alone to drive sales. Now we are seeing “good” corporate branding coupled with positive public relations in an effort to create customer loyalty to drive sales. CEOs from across diverse industries announced publicly that shareholders were not the only stakeholders in their companies. Employees and suppliers must also be dealt with in an ethical and fair way. Additionally, they maintained that the environment must be protected and they pledged to do so.
On September 3rd, Walmart revised its gun policy. The behemoth retailer will no longer sell handguns, ammunition for handguns as well as certain short barreled rifles. This decision comes after years of investor lobbying on the matter in addition to a shift in public sentiment.
Environmental stewardship is fundamental to a company’s sustainability and long-term profitability.
*Past performance is not indicative of future results. Securities are subject to market volatility. This information is based upon sources believed to be true and accurate, but its completeness and accuracy are not guaranteed. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict.
*All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges or expenses. Past performance is not indicative of future results. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. . The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.