In our final webinar of the year Curt Gross, FAI’s Chief Investment Officer, provided a year-to-date market summary for 2018, reviewed the current economic environment, and previewed what to look for and possible outcomes for the market in 2019.
2018 Year-to-Date Market Review
Through the end of October 2018, positive returns have been hard to come by as most major asset classes had negative returns. The S&P 500 was the only asset class with a positive return. However, returns in the S&P were largely driven by the FAANMG family of stocks (Facebook, Apple, Amazon, Netflix, Microsoft, and Google). Making up roughly 15% of the total S&P 500 by weight, they were responsible for 110% of the total returns through October. While these six stocks averaged 3.32%, the remaining 494 stocks averaged a -0.3% return.
Current Economic Environment
The current economic environment displays mostly positive signs, but our team continues to monitor indicators that could have a negative impact on overall growth:
- U.S. Employment – Unemployment is at its lowest point since April 2000. Low unemployment is an important factor of consumer spending, which makes up almost two-thirds of the economy. Employed consumers spend more, and current figures suggest the consumer is in good shape.
- Inflation – Inflation has increased, but by a modest amount. Inflation is important to the economy and encourages businesses to reinvest in equipment and employees, who then spend their higher wages on goods and services. This cycle reinforces further sustained economic growth. Inflation is currently between 2% and 3% and is in a good place for economic stability and growth.
- Consumer Confidence – Consumer confidence is strong, and we believe this is a by-product of the current employment picture. Consumer confidence combined with employment helps to drive consumer spending.
- Personal Expenditure Growth – Personal expenditure growth has accelerated as consumers are now buying both tangible goods and services. Increased levels help provide economic growth.
- Housing Market – Housing market usually picks up with employment, but we have seen a disconnect in this relationship across several major global economies, as well as our own. Housing generates more market activity than just the primary transaction. We are not getting the secondary and tertiary transactions for other businesses (such as real estate agents, banks, and contractors) that helps increase the flow of money in the economy.