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Quarterly Commentary, Q3 2019

Benchmark Returns for the Period Ended September 2019

RCG "r" Logo (2018)
Annualized
Quarter 1 Year 5 Year 10 Year
US Treasury Bills (one month) 0.53% 2.29% 0.91% 0.48%
Barclays Capital US Gov’t/Credit Inter Bond 1.37% 8.17% 2.68% 3.05%
Standard & Poor’s 500 1.70% 4.25% 10.84% 13.24%
Russell 1000 Value (large cap value) 1.36% 4.00% 7.79% 11.46%
Russell 2000 (small cap) -2.40% -8.89% 8.19% 11.19%
Morgan Stanley Europe, Australasia and Far East (EAFE) -1.07% -1.34% 3.27% 4.90%
MSCI Emerging Markets Index -4.25% -2.02% 2.33% 3.37%
Wilshire REIT 7.88% 18.39% 10.17% 13.06%

Quarterly Commentary

Year to date, global equity market returns remain strong, but returns were mixed for the third quarter. Domestic large-cap equities (as measured by the S&P 500) returned 1.70%, international large-cap equities (as measured by the MSCI EAFE Index) returned -1.07%, and emerging markets (as measured by the MSCI Emerging Markets Index) returned -4.25%. Real estate investment trusts (REITs) added another 7.88% for the quarter, which pushed their year-to-date return up to 27.21% (as measured by the Wilshire REIT Index). REITs are the best performing asset class thus far in 2019.

Domestic large company stocks continue to outperform both domestic small company stocks and international stocks. This is evident in the 1-year and 5-year returns of the S&P 500 listed above. While the S&P 500 is currently near an all-time high, small company stocks and international stocks are still below the highs reached in 2018. Although US large company stocks are the largest single asset class within our client investment portfolios, they are not the only asset class needed to ensure proper diversification.

Interest rates were once again the topic of conversation during the third quarter. The Federal Reserve lowered its interest rate target in both July and September, with the Fed Funds target rate currently between 1.75% and 2.00%. The bond market continues to price in additional interest rate reductions for the remainder of 2019 and beyond. The 10-year US Treasury rate also decreased during the quarter to near 1.75%.

Politics remains at the top of both domestic and international headlines. Domestically, candidates continue preparations for the 2020 presidential election. Internationally, trade discussions between the US and China continue, with a resolution appearing no closer than it was 12 months ago. Similar progress, or lack thereof, has also been the narrative for “Brexit.”

Globally-diversified investors have not been rewarded lately for their prudent approach. Rather than chasing the performance of a portion of the market, we will continue to advocate for the long-term value of global diversification. To quote Warren Buffett, “The stock market is designed to transfer money from the active to the patient.”

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.