2Q2018 | All Ages
The month of April, though somewhat volatile, brought forth modest gains for US equity markets. The Dow, S&P 500 and NASDAQ were up .34%, .38%, and .03%, respectively. International equities were mixed as the MSCI EAFE jumped 2.39%, but the MSCI Emerging Markets index dipped -.42%. Fixed income suffered as yields again spiked, with the 10-year treasury briefly breaching the 3.0% mark before settling back in the 2.90-3.0% range. This caused the Barclays US Aggregate Bond index to shed -.74% for the month.
While stock prices have gained a bit of positive momentum in the first part of May, broader portfolio returns, particularly for more conservative investors, have lagged the frantic growth rates that we have become accustomed to in recent years. However, valuations actually appear to be more attractive than when we began the year, benefiting from strong 4Q17 and 1Q18 earnings reports and forward forecasts. The economy continues to expand, with unemployment under control and signs of modest wage growth emerging. The Federal Reserve has indicated that they will continue to systematically increase short-term rates as the economic data deems appropriate, but at the current levels and pacing, we do not feel this will inhibit growth in a meaningful way. International valuations remain attractive, despite enhanced volatility in Emerging Markets due largely to uncertainty over trade.
Looking forward, we do expect some volatility to persist, as the economy needs to continue to prove it has gained the strength predicted by the rise in stock prices over the past 18 months. In the long-term, we do believe that mounting federal debt levels, coupled with the higher cost of borrowing associated with higher rates, could prove problematic for the staying power of the tax cuts that have recently been put in place. In the meantime, however, the pro-business environment and continued consumer optimism give us a positive outlook for equities for those that can stomach the short-term news-driven swings. We also maintain the belief that fixed income serves as an important component of diversified portfolios for investors with lower tolerance for volatility or shorter time horizons; despite the downward pressures on bond prices that rising rates can provide. While we will continue to make minor adjustments to our sector exposures within our equity holdings, and duration and credit quality in our fixed income positions, we will continue to stay disciplined in our long-term approach, and urge investors to do the same.
Our advisors welcome the opportunity to visit with your participants regarding any concerns they may have with the current market environment, and ways that they can manage the various risks that they face in working to achieve their goals. Please don’t hesitate to reach out to schedule your next review.
Eric Krause, CFA
Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a Registered Investment Adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Qualified Plan Advisors (“QPA”).
This commentary is provided for information purposes only and does not pertain to any security product or service and is not an offer or solicitation of an offer to buy or sell any product or service.