October 2017 Month In Review
October Month in Review
What is usually the most volatile month of the year became one of the least volatile months in almost 30 years. Volatility (measured by the Volatility index or the VIX) has historically had very few days where the index closed below a price of 10. In fact since 1990, only nine times (before this year) has the index closed under 10; which is roughly about 0.13% of the time1. So far in 2017 we have had 76 days in which the index closed under 10; and while since 1990 there has never been a day in October that fell in that range, it happened 20 times this year2! So to say October’s market volatility was surprising low would be a gross understatement.
The results were that the S&P 500 index was up 2.33%, the Russell 2000 (small and mid-cap stocks) ended the month 0.85% and bonds (measured by the Barclays US Aggregate Bond index) ended slightly lower at -0.12%2.
Corporations have begun to post 3rd Quarter earnings and so far the signs are positive. As we continue to push forward in this economy with our manufacturing and service indices continuing to post strong positive, expansive numbers, we begin to look to end of year events to happen, namely tax reform. While healthcare reform was a flop, we believe that with mid-year elections in 2018 and President Trumps first year of office coming to an end, there will be a lot of motivation to get tax reform through Congress and on a particular desk in the oval office.
The Fed continues to see normalization of policy as the market is now above 70% probability (guessing) that they will increase rates in December3. This, to us, would be a positive thing for our economy. Interest rates are relatively low still when looking at historical values and the markets have historically favored a positive correlation when the 10 year Treasury is below 5%4. We are well below 5%.
We continue to see a lot of growth overseas and continue to encourage the global allocation of portfolios. As a reminder, our tendency as investors is to have a “home-bias,” meaning we are most comfortable putting a majority of our investments in our own country. And while we do believe having a strong allocation to the U.S. is important, the statistics remind us that 75% of the global economic growth happens outside of the U.S., and 64% of the global stock and bond markets lie outside our borders5. With the U.S. dollar stabilizing, and many international countries easing their policy, we see a lot of compelling reasons to continue to have a globally diversified portfolio.
Overall we continue to remain optimistic about the rest of this year and 2018 is shaping up to show continued economic expansion. As always don’t hesitate to contact us for questions about your personal allocations or about your personal financial planning. We want to be a resource.
If you have missed any of our Month-In-Reviews you can find them archived on our website at https://www.aghwealth.com/p/month-in-review.
Thank you for your trust and confidence.
Brian Gensch
LPL Financial Advisor
Vice President, AGH Wealth Management
1https://seekingalpha.com/article/4113542-year-volatility-died
2Morningstar Direct™
3http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/
4JP Morgan Guide to the Markets: November 2017, Slide 14
5JP Morgan Guide to the Markets: November 2017, Slide 67
The economic forecasts set forth in the article may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk, including the loss of principal. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.