Considering it was September, domestic equity markets performed relatively well last month. The red-hot NASDAQ cooled a bit losing .63%. Both the S&P 500 and Dow posted gains; .81% for the S&P, 2.56% for the Dow. Year-to-date the NASDAQ, S&P 500, and Dow have advanced 16.56%, 8.99%, and 7.04% respectively. 2018 could be a very good year for domestic stocks as we enter the fourth quarter which is a time of year domestic equity returns typically excel.

Performance on the sector level reflects the strong performance the Dow turned in last month as the Industrial and Energy sectors rallied both gaining more than 3% for the period. Health Care issues continued to rally tacking on another 3.35% in September. For the year the Health Care sector has advanced over 15%. The Technology and Consumer Discretionary sectors continue to outperform all other sectors for the year with gains north of 20%. Many of the defensive sectors continue to underperform on a relative basis.

The rout of performance by Growth stocks and investments over Value stocks widened even further in September as the Citigroup S&P 500 returned 1.7% versus .49% for the Citigroup S&P 500 Value. Year-to-date Growth now leads Value by 1450 basis points or14.5%. We believe this trend will continue through year-end.

Domestic fixed income continues to lag the equity markets. Once again, the broad domestic bond market as measured by the Barclay’s Aggregate declined in September by .70% and is down 1.60% for the year. It is difficult to foresee a reversal for the broad bond market into positive territory through year-end. Within domestic fixed income, both High Yield and money market (very short-term bonds) instruments continue to shine with further advances in September and year-to-date performance of 2.57% and 1.36% respectively.

International equity market performance was mixed last month as Developed International issues advanced slightly and Emerging Market stocks declined slightly. Both are in negative territory for the year with returns of -1.02% and -4.82% respectively. Global fixed income performance in aggregate was slightly negative for September with the Aggregate declining .49% and it is essentially flat on a year-to-date basis.

In a nutshell, our bias towards domestic equity and fixed income securities is currently an advantage as the rest of the world underperforms on a relative basis. It is difficult to envision a major shift in this circumstance between now and year-end. There has been no change in domestic equities being relatively more attractive than domestic fixed income; consequently, we remain overweight equities in portfolios.

Major market index returns year-to-date thru September were as follows:

• S&P 500 8.99%
• NASDAQ 16.56%
• Dow Jones Industrial Average 7.04%
• Barclay’s Aggregate Bond Index -1.60%
• High Yield Bonds 2.57%
• 3 Month Treasury Bill 1.36%
• MSCI EAFE (International Equity) -1.02%
• Emerging Markets -4.82%

Indices for the week and YTD thru Friday are as follows:

• S & P 500 down .97% for the week; YTD index return is 8.02%
• NASDAQ Composite down 3.21% for the week; YTD index return is 13.35%
• Dow Jones Industrial Average down .04% for the week; YTD index return is 7.00%
• Benchmark 10-year Treasury bond yield stands at 3.23% - up 17 basis points for the week.

In brief:

The release of the jobs report Friday garnered most of the capital markets’ attention all week, first anticipation and speculation, then endless analysis and interpretation after its release yesterday morning. Job creation was significantly below trend in September, but previous estimates were revised upward. The unemployment rate dropped to 3.7%, and most notably the year over year increase in wages did not suggest strong wage inflation. The decline in domestic equity markets Friday was tied to various interpretations of the report. Most importantly the yield on the 10-year Treasury bond was up markedly for the week and has now risen over 80 basis points for the year – half the increase in the last month or so. Again, this is simply market acknowledgment of the increase in economic growth domestically. In a sense, we are working our way back to the “old normal”. There continues to be far more positives than negatives from a fundamental perspective. We believe Q3 earnings season will substantiate our view on the fundamentals. The NASDAQ stocks took the brunt of the decline last week. We expect some volatility going into the midterm elections but continue to be positive on domestic equities through year-end.