Market Commentary: Q3 2017

Amidst all of this, markets have performed well this quarter. The Dow Jones Industrial Average experienced a 5.58% return this quarter, while the S&P 500 rose 4.48%. To round out domestic stock indices, the NASDAQ Composite returned 6.06% in the third quarter of 2017 and is up over 21.00% on a year-to-date basis. Foreign indices fared well with the MSCI ACWI up 5.31% through the third quarter and 17.75% this year-to-date. Fixed income indices were relatively flat this quarter with the Bloomberg Barclays US Aggregate Bond Index up just 0.85% and the Bloomberg Barclays Global Aggregate Hedged Index up 0.78%.[4] The MSCI Europe, Australasia and Far East (EAFE) Index is up 5.47% this quarter and 20.47% this year-to-date, and emerging markets are up 8.04% through the third quarter and over 28.00% this year-to-date according to the MSCI Emerging Markets Index.

Technology, healthcare, and basic materials are leading the way so far this year-to-date with returns of 26.24%, 20.79%, and 15.64% respectively according to the Morningstar’s U.S. sector indices. Consumer defensive and U.S. Real Estate took a step backwards in quarter three with consumer defensive turning in losses of 1.02% and real estate turning in gains of 0.66% respectively.[5]

If there were a thermometer tracking the temperature of the political friction with North Korea it is certainly trending toward the hotter side, and continuing to heat up. President Trump signed an executive order which will enable the U.S. to sanction individual companies and institutions that finance trade with North Korea in an attempt to isolate Pyongyang, further constricting North Korea’s economy.[6] The hope here is that isolating Pyongyang will put a chokehold on North Korea’s nuclear weapons program which, as President Trump stated at the U.N.’s September meeting, poses a threat to “the entire world with an unthinkable loss of human life.”[7] The burden of this order would rest heavily on the shoulders of China who owns roughly 90% of North Korea’s foreign trade.[8] Outside of speculation and the obvious repercussions of military conflict on the global economy and countries, until the situation with North Korea begins to cool or heats to a fever-pitch, the true effect on the global economy will remain nothing more than speculation.

Global factor performance continued its strong trend in 2017. In developed global markets, momentum has continued to provide positive performance over the last few months with a 7.46% return this quarter. Rounding out the global factors: small cap stocks, quality, and value are trailing momentum with returns of 6.27%, 5.11%, and 4.77% respectively, with minimum volatility lagging behind with a 2.94% return in quarter three according to the MSCI ACWI factor weighted indices. Momentum also holds firm as the leader in the U.S., global ex-US, and emerging markets.[9]

One more development worth discussing is the potential tax reform blueprint and the progress on the plan. Although some say it is more smoke and less fire right now, the blueprint for a tax reform and formal plans are expected to be released in the coming weeks and months. The plan agreed upon right now includes adding to the federal deficit in order to set the path for a $1.5 trillion tax cut over the next 10 years.[10] Similar to the Fed’s quantitative easing, this tax cut is being put in motion with hopes of stimulating economic growth. However, there continue to be eyes on this plan’s potential to add to the federal deficit, which topped $20 trillion early in September and is projected to grow another $10 trillion in the next decade, and Republican calls for fiscal discipline continue to be a point of contention surrounding the deficit-financed tax cut.[11] We should receive more information on tax reform plans and potential impact of these plans in the coming weeks and months.

Despite devastation brought about by the recent natural disasters, political tension with North Korea, and mysteriously low inflation, the economy appears to be doing well. As previously mentioned, U.S. and global equity markets are going strong, and factor exposure is adding value across factors and regions.

Symmetry Partners believes in taking a long-term approach to investing, and we believe investors should avoid making investment decisions based solely on short-term market movements. We like to refer to this as “staying the course,” which is obviously much easier to do now as we are in a current period of growth. Even during times when markets are growing, however, investors may become restless and begin searching for opportunities for greater returns. It is important to remember that as a whole, markets tend to trend upward and for now, equity investors should enjoy this period of positive performance and stay well-informed on the events happening around us both domestically and internationally.

Symmetry Partners, LLC, is an investment advisory firm registered with the Securities and Exchange Commission. All data is from sources believed to be reliable but cannot be guaranteed or warranted. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non-investment related content made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions.

Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio.  Using this methodology, however, does not guarantee a profit or protection from loss in a declining market.  Past performance does not guarantee future results.

Index Disclosure and Definitions

Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts will differ from index performance.

Dow Jones Industrial Average represents a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.

MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.

MSCI ACWI Value Index captures large and midcap securities exhibiting overall value style characteristics across 23 Developed Markets countries and 23 Emerging Markets (EM) countries.  The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield.

MSCI ACWI Small Index captures small cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries. With 6,148 constituents, the index covers about 14% of the free float-adjusted market capitalization in each country.

MSCI ACWI Quality Index aims to capture the performance of quality growth stocks by identifying stocks with high quality scores based on three main fundamental variables: high return on equity, stable year-over-year earnings growth, and low financial leverage.

MSCI ACWI Momentum Index is based on MSCI ACWI, its parent index, which includes large and midcap stocks across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries. It is designed to reflect the performance of an equity momentum strategy by emphasizing stocks with high price momentum, while maintaining reasonably high trading liquidity, investment capacity and moderate index turnover.

MSCI ACWI Minimum Volatility aims to reflect the performance characteristics of a minimum variance strategy applied to large and mid-cap equities across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. The index is calculated by optimizing the MSCI ACWI Index, its parent index, in USD for the lowest absolute risk (within a given set of constraints). Historically, the index has shown lower beta and volatility characteristics relative to the MSCI ACWI Index.

MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the developed equity market (as defined by MSCI) equity performance, excluding the U.S. and Canada. 

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by MSCI).  The index consists of the 25 emerging market country indexes.

NASDAQ Composite Index is the market capitalization-weighted index of approximately 3,000 common equities listed on the NASDAQ stock exchange.

Bloomberg Barclays US Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States – including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.

Bloomberg Barclays Global Aggregate (USD Hedged) Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging market issuers. Index is USD hedged.

Morningstar US Technology Sector includes companies engaged in the design, development, and support of computer operating systems and applications. This sector also includes companies that provide computer technology consulting services. Also includes companies engaged in the manufacturing of computer equipment, data storage products, networking products, semi-conductors, and components. Companies in this sector include Apple, Google and Microsoft.  

Morningstar US Healthcare Sector includes biotechnology, pharmaceuticals, research services, home healthcare, hospitals, long-term care facilities, and medical equipment and supplies. Companies in this sector include Astra Zeneca, Pfizer and Roche Holding.

Morningstar US Basic Materials Sector includes companies that manufacture chemicals, building materials and paper products. This sector also includes companies engaged in commodities exploration and processing. Companies in this sector include ArcelorMittal, BHP Billiton and Rio Tinto.

Morningstar US Consumer Defensive Sector includes companies engaged in the manufacturing of food, beverages, household and personal products, packaging, or tobacco. Also includes companies that provide services such as education & training services. Companies in this sector include Philip Morris International, Procter & Gamble and Wal-Mart Stores.

Morningstar US Real Estate Sector includes mortgage companies, property management companies and REITs. Companies in this sector include Kimco Realty Corporation, Vornado Realty Trust and Westfield Group.

 

© Morningstar 2017. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.

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