First Quarter 2019
What a Difference a Quarter Makes
What a wonderful smell of fresh air arrived with the first quarter of 2019. Without rehashing the last quarter of 2018, which was “not good”, it is easy to say the first quarter of 2019 was “wonderful.”
Last year I was reporting that almost all asset classes were down for the year, an unusual event. In the first quarter of this year, almost all asset classes were up, also a rather unusual event.
Looking at the numbers, we see the magnitude of this change. The year began with the S&P 500 at 2507 and ended the first quarter at 2834, up 327 points or 13.1%. The S&P Mid Cap index went from 1663 to 1896, up 233 points, for a gain of 14%. The S&P Small Cap index went from 845 to 939, an increase of 94 points, for a gain of 11.2%.
Because we believe in diversification, we are also interested in bonds and international stocks. The international stocks, represented by the DJ Global ex U.S., went from 223 at the beginning of the year, to 244 at the end of the first quarter, for a gain of 21 points or 9.5%.
Bond interest rates decreased during the quarter, which means the value of the bonds rose. The 10-year Treasury Bond went from 2.684 to 2.416 for a gain of 0.1%. The Bloomberg Barclays US Aggregate Bond Index dropped from a yield of 3.28% at the beginning of the quarter to 2.93% at the end, for a positive return of 0.1%. The value of bonds, at the end of the quarter, was lifted by an announcement by the Federal Reserve (FED) that they were unlikely to increase the discount rate again this year.
In reviewing the investment climate at the end of 2018, I indicated that the overall pricing of stocks, relative to earnings was reasonable. At that time, for example, the forward S&P 500 price earnings ratio was at 15.25, with estimated dividends of about 2.15%, which made them competitive with bonds. With the substantial rise in stock prices these indicators have changed. The forward S&P500 price to earning ratio has risen to 17.03. While this is not as frothy as 19.77, at the beginning of 2018, it means that prices on stocks are climbing faster than earnings. In addition, we are seeing the dividend yield lowered to 1.96% from the end of year 2.15%, which means dividends are not keeping pace with the increased pricing on stocks.
Stocks, in general, are priced based on their anticipated earnings. The market reflects concern that companies are not increasing earnings. During the next month, companies will be reporting their earnings. Investors will watch closely. If many companies miss their earnings estimates, they could have a negative impact on the markets.
Given the current state of the stock and bond markets, it seems clear that diversification will continue to be very important.
During the first quarter Secure Planning changed our business structure from an S corporation to a Limited Liability Company (LLC). This change was made on the recommendation of our accountants and will have no impact on our operations. Where our stationary and mailing use to say: Secure Planning Inc., they will soon say Secure Planning LLC.
April 17, 2019
This newsletter contains opinions or forward-looking statements relating to the investment markets and general economy. Such opinions and statements depend on a variety of risks, uncertainties and other factors, and accordingly, actual results may differ from those reflected herein. All statements speak only as of the date they were made, and none of Secure Planning, LLC or any of its affiliates, principals nor any other entity or individual assumes any obligation to update any forward-looking statement as a result of new information, subsequent events or other circumstances.