By Eric Schopf
Stock market strength continued in the second quarter with the Standard & Poor’s 500 delivering a total return of 3.11%. The bond market was even stronger as interest rates fell across the yield curve. The yield on the 10-Year U.S. Treasury fell from 2.42% to 2.00%. The increase in 10-Year Treasury bond prices corresponds with a total return of over 4.0% in the quarter. Although the numbers look solid in retrospect, the quarter was filled with drama. The stock market climbed over 4.0% in the month of April, only to fall 6.6% in May. The market rallied once again and advanced 7.3% in June.
By Rick Rubin, CFA
Eleuthère Irénée du Pont de Nemours (E. I. du Pont) was a chemist born in Paris in 1771. From a young age, du Pont was interested in explosives. In 1802, he founded DuPont de Nemours (legacy DuPont) in Wilmington, Delaware to manufacture high quality gunpowder. The company expanded rapidly and became a key specialty chemicals producer. Their research efforts led to the development of nylon, Lycra/spandex, Tyvek and Kevlar. In 2015, DuPont completed the spin-off of its Performance Chemicals division as a public company named Chemours. Chemours assumed certain liabilities from DuPont including litigation related to the Teflon product.
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By Ted Hart
You may have heard this old Wall Street maxim that warns against greed and impatience, but have you followed it? Without a doubt, the stock market can be an exciting place, and it’s easy to get roped into the allure of finding the next home run or timing a trade just right. For instance, a friend at a cocktail party may tell you about the killing he made off that ABC trade, and you may think, heck, why can’t I do that? Then there’s your inner trader who may get the best of you and get you thinking that you too can perfectly time your entry and exit points. If you have ever found yourself directing trades based on your emotions or you have attempted to time the market, are you really investing for the long haul? Or are you looking to make a quick buck? At Tufton, we may even suggest that you are gambling, not investing, with your retirement savings.
by Chad Meyer, CFA
Among nature’s many virtues is the simple logic of its progression. The fervor of one season will feed, with some reliability, into the fruits of the next. At Tufton Capital you would be hard-pressed to find a voice in rave review of last winter’s interminable rain and snow. But as the warm weather finally takes hold, we cannot help but look forward to the lushness of spring. There is solace in the knowledge that all those gray, rainy yesterdays will make for green afternoons in the months to come.
Of course, while nature is permitted to repeat itself—turning bloomy, gloomy, and then bloomy again with calendar precision—we expect a bit more from the market. In the first quarter of 2019, the stock market made good on last year’s choppy finish, with the S&P 500 besting a decades’ worth of quarterly growth records in one heady 14% swoop. Not to be outdone, the NASDAQ climbed nearly 17%, bringing that index (like the S&P) well above its 52-week low and well within range of its 52-week high. Needless to say, this is all welcome news. But as investors consider their next move, the questions are inescapable. Are the good times on good footing, or should one expect the market to change with the weather?
By Eric Schopf
The first quarter delivered a reversal of fortune for equity investors as the Standard & Poor’s 500 provided a total return of 13.65%. The dismal fourth quarter of 2018 is now in the rear-view mirror and almost completely out of sight. The market is just slightly below its all-time high reached in September. Fixed income investors were also rewarded this quarter when the 10-Year U.S. Treasury yield fell from 2.68% to 2.42%.
The strong gains in the securities markets followed the abrupt pivot executed by the Federal Reserve. Our concern entering 2019 was that monetary policy was too restrictive. The Fed instituted their fourth interest rate hike of 2018 in December. At the time they also signaled the possibility of two additional rate increases in 2019. Following a slew of weak economic data and the stock market selloff in December, the Fed quickly changed course. They became far more dovish and began preaching patience. The Fed clearly signaled that further interest rate increases would be put on hold. To show that they really meant business, the Fed also announced that quantitative tightening would end and that quantitative easing would return. Quantitative easing is the strategy of purchasing fixed income assets in the market place to help control interest rates. Quantitative tightening is the process of allowing those purchased securities to mature without reinvesting all of the proceeds. Maturities, net of reinvestment, were reducing the Fed’s portfolio by $30 billion per month. Portfolio shrinkage will drop to $15 billion per month in May, and all maturity proceeds will be reinvested beginning in September.
By Randy McMenamin, CFA
An informal survey asked people what is the first image they associate with the word Disney. The overwhelming response was Mickey Mouse. However, there is a lot more to Disney than the famous mouse. There is a new Disney on the horizon, brimming with major organizational changes.
Disney is a diversified worldwide entertainment company, which consists of four operating segments: Media Networks (41% of revenue), Parks and Resorts (34% of revenue), Studio Entertainment (17% of revenue), and Consumer Products & Interactive Media (8% of revenue).
By Rick Rubin, CFA
Many financial advisors build a book of business using mutual funds for their affluent clients. Is it because funds have favorable characteristics and offer stronger investment returns? Absolutely not. Mutual funds have many drawbacks!! First, they limit an advisor’s ability to customize a portfolio and manage risk effectively. Second, they add an additional layer of fees, which reduces an investor’s returns. Third, they are inefficient for investors who want to manage their tax bills. Small retail investors have few options and mutual funds may make sense for them. Fortunately, our clients enjoy a customized approach to managing their money. We invest in a diversified portfolio of individual stocks and bonds to meet their goals.
by Chad Meyer CFA
For all of its joys, the holiday season also has a well-documented history as a source of stress. While they couldn’t all have been hosting their in-laws for an extended visit, American investors certainly bore the brunt of that phenomenon this past December. As trees were lit and skis waxed, market commentary ranged from stunned disbelief to gallows humor. Perhaps nowhere was the mood more accurately captured than in the Wall Street Journal’s Christmas Eve headline: “On the Bright Side, The Market Closes Early Today.” Bah humbug, indeed.
By the numbers, this pervasive pessimism was amply justified. The S&P 500 and Dow Jones Industrial Average turned in respective tumbles of nearly 14% and 12% in the fourth quarter. Both performances were punctuated by the worst December drop either index had seen since 1931. Unable to lean upon the once-invincible “FAANG” gang, the Nasdaq followed a similar script, plunging a remarkable 17.5%. With a year’s worth of gains (and then some) melted away, the perches of September suddenly felt like ancient history.
By Eric Schopf
The Standard and Poor’s 500 turned in the worst fourth quarter performance since the depths of the financial crisis of 2008. The fourth quarter total return of -13.52% wiped out all performance gains for the year, which finally settled at -4.38%. It was also the worst quarterly result since the third quarter of 2011 when the S&P 500 contracted by nearly 14%. While these figures pale in comparison to the 22% correction in the fourth quarter of 2008, they serve as a good reminder about investment time horizon, asset allocation and risk tolerance.
In typical fashion, as the stock market swooned, the bond market rose. With the exception of the very shortest term instruments, interest rates on United States Treasury securities fell across the yield curve. Ten-year rates dropped from 3.05% to 2.68%. However, the ten-year rate touched 3.23% intra-quarter which made the decline even more impressive. As a proxy for mortgage rates, the ten-year rate is an important economic gauge. Rates on one-, three- and six-month Treasury Bills continued to climb during the quarter in reaction to the Federal Reserve’s most recent interest rate hike imposed in December. The higher short-term rates have kept money market fund rates elevated.
By Chad Meyer, CFA
It’s an ongoing debate. Should investors use active or passive strategies in their portfolios? Proponents of active management argue that experienced money managers can outperform their benchmarks over market cycles while simultaneously positioning portfolios to avoid investments thought to have poor risk/return characteristics. Advocates of passive management, on the other hand, often point to greater tax efficiency and lower costs. Let’s explain how both of these two strategies work.
By Ted Hart
Today it is more prudent to think about Apple (AAPL) as a consumer discretionary or consumer staple company rather than a technology hardware company. Despite popular belief, Apple is rarely the innovator for each product category; they simply improve ease of use and product appeal. Starting with the MP3 player, Apple redesigned and released their version with the iPod. In 2007, Apple “connected the dots” with the iPhone, merging the cell phone, the Palm Pilot and the MP3 into one device – all the while keeping the device small and sleek. The iPad came soon after, capturing many of the already iPhone customers. Finally, the launch of the Apple Watch in 2015 was introduced as nothing other than a luxurious item. CEO Tim Cook alongside supermodel Christy Turlington Burns released the watch at the Apple Developer Conference. The release was followed by a twelve-page advertisement in the popular fashion and lifestyle magazine Vogue.
Compounding is often referred to as “magical” because of the way it can help your savings grow. While its power is impressive, the way it helps you is simple math, not magic.
Compounding simply refers to producing earnings off of your previous earnings. Each time your earnings are “compounded,” it means that the amount you have earned on your original investment (usually in the form of interest or dividends) has been added to your original investment, increasing both the principal and the amount that your principal can earn on its next earnings payment. With a savings account, you can usually choose to compound yearly, quarterly, monthly or even daily. With stocks, bonds or mutual funds, the most frequently you can compound may be monthly. When all other factors are equal, generally the more often you compound, the higher your earnings will be. The reason compounding gets so much fanfare (Albert Einstein reportedly called it “the eighth wonder of the world”) is that it can offer you exponentially increased earnings with minimal effort on your part. (more…)
by Chad Meyer CFA
With class officially back in session, it is perhaps fitting to greet fall with the words of an author familiar to most American students. “October,” wrote Mark Twain, “is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.”
If there’s any truth in numbers, it appears Mr. Twain was at least partially mistaken. Rather than unleashing “peculiar” peril, July, August and September offered the kind of across-the board gains to which American investors have, by this point, become accustomed. In the third quarter of 2018, the Dow Jones rose roughly 9%, while the S&P 500 and the NASDAQ both posted gains of over 7%. Driven in large part by continued robust earnings growth, each index closed out September near record highs, with the S&P drawing particular praise for its strongest quarterly showing of the last five years. Stepping back to a macroeconomic perspective, the story stays much the same. Real GDP growth is expected to clock in at an annualized 4.2%, consumer and executive confidence is high, and joblessness claims have reached lows not seen since the 1960s. (more…)
By Eric Schopf
The third quarter brought wet conditions to many areas of the country. We in Maryland experienced the soggiest July ever with nearly 17 inches of rain measured at Thurgood Marshall Airport. Not only was this the wettest July ever, it was within a few inches of being the rainiest month ever for our area. Although we may have been shrouded in clouds, the sun was shining brightly on Wall Street. The Standard and Poor’s 500 provided a total return of 7.71% for the quarter. The total return for the year stands at 10.56% as of September 30.
The impressive market returns reflect a strong economy and surging corporate profits. Second quarter Gross Domestic Product (GDP) grew at 4.2%. Preliminary estimates for the third quarter are 3.1% growth – quite respectable. Third quarter year-over-year earnings growth for the S&P 500 was 18%. We are also gaining clarity on the trade front. The United States – Mexican – Canada Agreement (USMCA) was reached at the end of September. The USMCA will replace the North American Free Trade Agreement, which was implemented on January 1, 1994. Major provisions of the new agreement will impact dairy farmers and automobile manufacturers. More importantly, the USMCA eliminates the uncertainty surrounding nearly $1.2 trillion of combined trade with Canada and Mexico. Trade negotiations, particularly with China, are continuing behind the scenes. The European Union is also unresolved business. These discussions promise to be contentious and may stretch out longer than we like. (more…)
By Eric Schopf
Founded in 1792, State Street Corporation (STT) is headquartered in Boston, Massachusetts. State Street provides a range of financial products and services to institutional investors worldwide. The company has two lines of business: Investment Servicing and Investment Management.
The Investment Servicing business offers accounting, custody, fund administration and shareholder recordkeeping. The company offers its products and services to mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. They provide some or all of these integrated products and services to clients in the U.S. and in many other markets, including Australia, Cayman Islands, France, Germany, Ireland, Italy, Japan, Luxembourg and the U.K.
