12 Jun Monthly Market Monitor – October 2017
Global Capital Markets
- Global stock returns were positive once again in October; global bonds, and commodities bounced back to post modest gains while real estate remained lagged in October.
- Global stocks remain the top performer over the last one, three, and 12 months by a noticeable margin.
- As displayed below, more aggressive-oriented portfolio mixes with larger allocations to stocks, which are generally considered riskier, outperformed more conservative mixes over the last one, three, and 12 months.
US Stock Markets
- The broad US equity market finished the month up more than 2%; US stocks are now up over 16% year to date and 24% for the last 12 months.
- Small caps lagged large cap in October; however, they outperformed large caps over the last three and 12 months.
- Value trailed the broad market over the last one, three and 12 months.
- Over the last year, the size, quality, and momentum premia have been positive vs. the broad market; whereas value has lagged considerable.
- The multi-factor index outperformed the broad market over all time periods shown.
Non-US Stock Markets
- In US dollar terms, US stocks outperformed non-US stocks in October; US stocks are now modestly ahead in the last three and 12 months as well.
- Emerging markets continued its recent run of outperformance in October; EM has outperformed developed markets over the last one, three, and 12 months.
- Small caps and value stocks in developed markets trailed the broad market in October.
- Momentum modestly outperformed while quality lagged the broad developed market index in October.
- Over the last year, the small size, value and momentum premia delivered excess returns relative to the broad developed market index.
US Treasury Yield Curve
- The US Treasury yield curve, which charts interest rates on US Treasury bonds with different maturity dates, was relatively unchanged in October.
- In recent months, interest rates increased only incrementally.
- Over the last year, however, the curve shifted upward as rates across the curve increased by approximately 55-80 basis points.
- As a reminder, the primary driver of returns on high-quality, investment-grade bonds is changes in interest rates which are inversely related to bond prices (i.e., when rates go up, bond prices go down and vice versa).
- Investment grade taxable US and non-US bonds (USD-hedged) posted slightly positive performance in October as well as over the last year.
- Short-term and long-term bonds posted relatively similar returns in October in light of the relatively unchanged yield cure; over the last year, however, long-term bonds noticeably lagged.
- Credit risk was rewarded over all time periods shown as high yield bonds outperformed both credit and Treasury bonds over the one-, three- and 12-month periods.
- Treasury Inflation Protected Securities (TIPS) modestly outperformed nominal Treasury bonds in October as well as over the last three months.
We hope you found this market monitor update valuable. Please reach out to us with any questions you have or if you’d like to discuss working together,
Kathmere Capital Management
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.
Stock Investment Risk
Stock investing may involve risk including loss of principal.Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
Bond Investment Risk
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.
Alternative Investments Risk
Alternative strategies may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments.