2nd Quarter 2018 – End Summary
Since the beginning of the year, investors have seen a different kind of comeback in the way of frequent market volatility. The noisy highs and lows of the stock market have become a familiar sound bite. While it won’t win any popularity contests, volatility is often cast as the villain. This assessment leaves out an extremely important detail, namely that volatility is a normal and necessary part of investing, even if the events that stir the markets are far from the definition of heartwarming.
Over the past quarter, these three financial events have played a major part in the increase in volatility:
Italy and the Eurozone – In late May, global markets experienced sharp declines reacting to concerns that Italy might leave the eurozone. On May 29, the S&P 500 Index declined 1.2 percent.1 Global concerns subsided after “reassuring comments on Italy’s continued membership of the eurozone by the country’s finance minister offered further support to Italian stocks and bonds.”2
Tariffs and Trade Wars – Ongoing issues with tariffs continued to rile global markets with trade war tensions between the United States and its major trading partners intensifying since the spring. The tariffs being imposed are not confined to steel and aluminum. Companies across industries from automakers to the New England lobster industry could be affected by tariffs and retaliatory tariffs. Historians and economists have offered perspective by citing the Smoot-Hawley Tariff Act of 1930, the tariffs imposed on imported steel in 2002 and the consequences that resulted from the trade wars that followed. However, the full effects of a trade war in the current global economy are still to be seen, and we cannot predict how these tariffs will positively or negatively affect the market or the U.S. economy.
Fixed Income and Rising Interest Rates – In June, the Federal Reserve raised the federal funds rate by 0.25% for the second time since January. This interest rate increase coupled with expectations of another rate hike later this year resulted in a decline in the value of long-term bonds. Some investors saw this as cause for concern, but it is normal for bonds to lose a few percentage points in the short term when interest rates rise, and those same higher rates denote the expected return on those bonds will be correspondingly higher than they were before. For investors with a reasonable time horizon, such losses are only temporary if they stay invested in the bonds (or the mutual fund holding those bonds). Then, they would receive the same interest payments they would have otherwise and recover the full par value over the remaining life of the bond. Furthermore, as bonds mature and are reinvested, the fund will buy higher-yielding bonds, earning more in the long run.
With so much focus on the fluctuating stock prices of a few U.S. companies, less attention has been given to small-cap value stocks, which have fared well against the backdrop of the current market environment.3 This quarter, small-cap value stocks managed to rise above the noise, up 6.03%.4 Yet, small-cap value stocks do not garner as many headlines as the large-cap stocks that usually enjoy the limelight, such as the Dow Jones Industrial Average, which tracks the stocks of 30 well-known companies but represents an extremely small portion of the market in which there are more than 10,000 stocks worldwide.
When small cap and value are included in a portfolio, exposure to large-cap stocks is reduced. Thus, one of the benefits of a globally diversified portfolio that includes equities and fixed income is the rise or fall of one asset class does not determine that portfolio’s value.
In conclusion, investors and moviegoers may not have a lot in common, but there is one thing upon which most everyone can agree: No one likes a cliffhanger. Audiences usually demand closure in the form of a well-written ending where the heroes save the day, and everyone lives happily ever after. On the opposite side of the aisle, long-term investors realize that the journey to achieve their financial goals has too many twists and turns to be told in one showing. A story like this requires such careful attention to plot, characters and setting, that it just might require a sequel.
Please call our office if you would like to have a conversation about the market or your portfolio.
1 Jon Sindreu and Mike Bird, “Italy Sparks Global Fear of Fresh Euro Crisis.” The Wall Street Journal, May 29, 2018.
2 Dave Shellock, “The Day in the Markets: What You Need to Know.” Financial Times, June 13, 2018.
3 Anora M. Gaudiano, “Why Bulls Are Betting on Small-Cap Stocks to Continue Their Winning Ways.” MarketWatch, May 30, 2018.
4 Small-cap value as proxied by the DFA U.S. Targeted Value Portfolio (DFFVX).
Fund return data was obtained from Dimensional Fund Advisors, Envestnet | Tamarac and Morningstar. Total returns include reinvestment of dividends and capital gains and are net of fund fees and expenses. Custodial and advisory fees are not included.
Meet With Your Advisor
It is important to let us know when you have any changes in your investment objectives or financial circumstances. It is also important to review your account beneficiaries each year to make sure that no personal changes need to be made and the primary and contingent beneficiary designations are up to date and accurate. To notify us about any such changes that have occurred since we last met with you, please contact our office and schedule a meeting with your advisor.
We look forward to helping you stay on course.
PR Wealth Management Group, Inc. a Registered Investment Advisor, doing business as Legacy Wealth Management Group of Las Vegas, LLC. PR Wealth Management Group, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. PR Wealth Management Group, Inc. and Legacy Wealth Management Group of Las Vegas, LLC. are not affiliated companies. The home office is located at 990 Avenue of the Cities, Suite 4., East Moline, IL. 61244. The Las Vegas branch is located at 8235 S. Eastern Ave. Suite 160., Las Vegas, NV. 89123. Before making investment decisions please call our office at 702.545.0680 to receive a copy of PR Wealth’s Advisory Agreement and Form ADV Part 2A, which includes PR Wealth’s fee schedule. This information is intended to serve as a basis for further discussion with your professional advisors. Although great effort has been taken to provide accurate numbers and explanations, this information should not be relied upon for making investment decisions. Web: www.Legacywmglv.com
Forum Financial Management, LP is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability. The home office is located at 1900 S. Highland Ave., Suite 100, Lombard, IL 60148. Before making an investment decision, please contact our office at 630.873.8520 to receive a copy of Forum’s Advisory Agreement and Form ADV Part 2A, which includes Forum’s fee schedule. This information is intended to serve as a basis for further discussion with your professional advisors. Although great effort has been taken to provide accurate numbers and explanations, this information should not be relied upon for making investment decisions. web: www.forumfin.com
Information is used with the express permission from Dimensional Fund Advisors. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about Dimensional funds, please read the prospectus carefully before investing. Dimensional funds are distributed by DFA Securities LLC.
Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investment strategies have the potential for profit or loss. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. There are no assurances that a portfolio will match or outperform any particular benchmark.
PR Wealth Management Group does not reinvest dividends and capital gains. Those amounts are used to rebalance a portfolio. In all the charts above, custodial fees and advisory fees are not included, and the analysis above does not account for advisory fees, custody fees, or tax consequences.
Nothing in this publication should be construed as investment advice. All information is believed to be from reliable sources; however, its accuracy and completeness and the opinions based thereon by the author are not guaranteed and no responsibility is assumed for errors and omissions. Any economic and performance data published herein is historical and not indicative of future results. All rights reserved. Please consult your personal advisor and investment prospectus before making an investment decision.
Copyright © 2018 by Forum Financial Management, LP
Legacy Wealth Management Group
Greg Feese CRPC®, Investment Advisor Representative. Advisory Services offered through PR Wealth Management Group, Inc., a Registered Investment Advisor. PR Wealth Management Group, Inc., a Registered Investment Adviser, doing business as Legacy Wealth Management Group of Las Vegas, LLC. PR Wealth Management Group, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. This is not a solicitation for sale of securities in any jurisdiction.. The investment advisory representatives referred to on this site may only transact business, effect transactions in securities, or render personalized investment advice for compensation, in compliance with state registration requirements, or an applicable exemption or exclusion.
© 2019 Legacy Wealth Management Group Las Vegas LLC.
Notice and Disclaimer
PLEASE NOTE: The information being provided is strictly as a courtesy. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to. We make no representation as to the completeness or accuracy of information provided at these websites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this website.