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Market Commentary

Entering the 4th quarter of 2018, the US stock market indexes continue to lead the way, despite massive global economic and political concerns. However, what lies beneath the advance of the Dow and S&P is of greater concern. According to a research report by Goldman Sachs, the top 10 S&P 500 stocks have contributed more than 100% of the index’s year-to-date gain. Furthermore, as of July 2018, the top five stocks alone (Amazon, Microsoft, Apple, Netflix, and Facebook) have contributed over 90% of the S&P 500’s year-to-date gain. This presents a case of the index being extremely top-heavy and, therefore, not showing a real representation of the overall market.

As we evaluate our diversified portfolios and look for opportunities, we see two issues that have had a major influence on total return: global trade wars, and the strengthening of the US dollar. According to Morgan Stanley, 2018 is on track to deliver the lowest share of positive returns adjusted for inflation across 17 major asset classes since 2008. This huge divergence of US stocks versus bonds, global bonds, and international equites has put cracks in the synchronized global growth story and pushed asset returns into negative territory across much of the world.

We maintain the belief that diversification across all asset classes will continue to produce the best risk-adjusted long-term returns. Fundamentals are still very good for international equity exposure. We continue to look for bond alternatives in rising rate environments and reinforce the concept of “buy low and sell high.” We also do not encourage the notion of “chasing the market” and buying into the over-performing stocks and sectors while they’re at an all-time high. Overall, the global growth story continues to be positive, although not without bumps in the road.