Market Share Newsletter Vol 1 Issue 2

Issue #2: September 4, 2019

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Welcome to The Market Share, an e-newsletter focused on market insights for your investments.

As August is now behind us, the themes of trade wars, negative international yields, and a potential recession continue to make headline news. This type of news is likely to persist as we near the end of summer and begin to see signs of fall.

Historically, this time of year has signified a period of transition for markets, as September and October tend to see volatility on a larger scale. Likewise, in a review of top 20-percentage-point “up” days and the top 20-percentage-point “down” days, we found that 50% of these occurrences happened in these two months alone. This will be an interesting point to note if we see some big market moves this fall.

For more detail on the month-end economic data and corporate earnings that we saw at the end of August, please continue to read on for our commentary below.

Thank you for taking time to review The Market Share, and as always, we appreciate the opportunity to work with you!

Paul Gifford, CFA
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.

Considerations for your portfolio
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The Economy

  • Job openings in the United States have now exceeded seven million for 15 consecutive months while the total unemployed has averaged 6.2 million for the same period. The present difference between job openings and the number of unemployed in the U.S. is 1.37 million.
  • The S&P Case-Shiller Home Price index recently reported June home price increases of 3.13% YoY, which was the smallest annual increase since September 2012. It has been a gradual slowdown in housing prices for the past 12 months, but U.S. consumers continue to be the strength of this economy and provide a stable backdrop for housing.
  • The Markit US Manufacturing PMI index turned into contraction territory in August for the first time in approximately ten years. This comes as a small surprise as the manufacturing sector in the U.S. has grown for a decade, but recent trade wars and a matured business cycle have put pressure on the sector.
Economic Data: Recent
  Actual Survey Prior
Markit US Manufacturing PMI 49.9% 50.5% 50.4%
S&P Case-Shiller Home Price YoY    3.13% 3.30% 3.35%
Consumer Confidence (Conf. Brd.) 135.1 129% 135.8%
PCE Core Deflator MoM 0.2% 0.2% 0.2%
Economic Data: Upcoming
    Survey Prior
ISM Manufacturing   51.3 51.2
ADP Employment Change   149k 156k
Change in Nonfarm Payrolls 160k 164k
Retail Sales Advance MoM   0.3% 0.7%


  • Exxon Mobil is no longer one of the ten largest companies in the S&P 500 as of August 31. The index is now dominated by companies in technology and communication services—Amazon, Google and Microsoft. The energy sector has gone from comprising 11.7% of the S&P 500 a decade ago to only 4.4% today.
  • Target announced excellent second quarter results on August 21 as quarterly profits increased by 17% and were attributed to same-day shipping services and in-store pickup. The stock increased over 20% on the news. Walmart also reported excellent earnings a week prior.
  • According to Bloomberg data, earnings growth for the largest South Korean companies will continue to slide and could have the “worst annual profits in 18 years.” To add to this pain, South Korea sits in a tough spot amidst the trade war between the U.S. and China and they have recently been directly involved in their own trade war with Japan.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 2,926.5 18.34% 2.92%
Dow Jones Industrial Average 26,403.3 15.14% 4.12%
NASDAQ Composite 7,692.9 20.90% -0.66%
Russell 2000 (small-cap index) 1,464.8 11.83% -12.92%
MSCI EAFE (developed intl.) 1,837.9 9.95% -2.64%
MSCI Emerging Markets 462.6 3.84% -3.62%
Federal Reserve's Inflation Target

Fixed Income

  • Traders believe that the Federal Reserve will cut interest rates by an additional 50 basis points by year-end. They previously cut their target rate by 25 basis points on July 31 to a range of 2.00-2.25%.
  • Negative yielding global debt has now breached $17 trillion—almost entirely attributable to Europe (non-UK) and Japan.
  • The yield on the 30-year U.S. Treasury bond reached an all-time low of 1.90% on August 28. This yield was lower than the dividend yield on the S&P 500 (approximately 1.95%). Low inflation, $17+ trillion in negative yielding bonds globally, a Federal Reserve trying to avoid a recession at all costs, and trade tensions will contribute to keeping interest rates lower for longer.
  • The Bloomberg High Yield Municipal bond index has returned over 8% annualized for the past ten years. Despite the great performance, we continue to analyze the subsector and closely follow the changes within it.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.81% 6.79% 8.12%
B’berg Barclays US Aggregate Bond 2.13% 9.10% 10.17%
B’berg Barclays US Corp.High Yield 5.73% 11.00% 6.56%
B’berg Barclays Municipal Bond 1.65% 7.61% 8.72%
Key Interest Rates
  9/2/19 12/31/18 9/4/14
Federal Funds Target Rate 2-2.25% 2.25-2.5% 0-0.25%
3-Month LIBOR 2.14% 2.81% 0.23%
2-Year U.S. Treasury Note 1.5% 2.49% 0.52%
10-Year U.S. Treasury Note 1.5% 2.68% 2.4%
Prime Rate 5.25% 5.50% 3.25%
Federal Reserve's Inflation Target
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
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1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.