Market Update from CIO Dave Klassen - September 2018

MARKETS

  • Most global markets were mixed, as U.S. economic indicators remained strong amidst continued trade war tensions. The S&P 500, which tracks large cap U.S. stocks, increased 0.57% in September and is up 10.56% Y-T-D. The Russell 2000 Index, which tracks domestic small cap stocks, decreased 2.41% in September, but remains one of the better performing indices in 2018, up 11.51% Y-T-D.  The International developed equity index (MSCI EAFE), increased 0.87% in September and is down 1.43% Y-T-D. The emerging markets index (MSCI EM) decreased 0.53% in September and is down 7.68% Y-T-D.
  • In September, the bond yield increased, and prices declined; the 30-year U.S. Treasury bond yield increased 17bps to 3.19%, while the 10-year yield increased 19bps to 3.05%, and the 5-year yield increased 20bps to 2.94%.
  • The Barclays Aggregate Index, which is a well-known measure of U.S. Bond prices, decreased 0.64% for September and is down 1.60% Y-T-D.

ECONOMIC AND GEOPOLITICAL HEADLINES

  • U.S. gross domestic product (GDP) in the second quarter of 2018 increased 4.2%, according to the “third” estimate released by the Bureau of Economic Analysis. First quarter 2018 GDP increased 2.2%.
  • The September Purchasing Managers Index (PMI) decreased slightly, to 59.8 from 61.3 the previous month, indicating that the economy grew at a slightly slower pace.  Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion.
  • In September, non-farm employment rose by only 134,000 jobs, well below estimates of 185,000 though the unemployment rate dropped to 3.7%, the lowest level since December 1969.  Both August and July numbers were revised up significantly, from 201,000 to 270,000, and from 147,000 to 165,000, respectively. Average Hourly Earnings (wages) increased by 2.8% year-over-year, in line with estimates.  The monetary policy normalization and Fed plan to raise rates is expected to stay on track.

PERFORMANCE AND PLAN UPDATES

  • Net of all fees, the Equity Fund decreased 0.11% in September and is up 3.16% Y-T-D. The Bond Fund decreased 0.42% in September and is down 1.66% Y-T-D. The Stable Value Fund was up 0.14% for September and is up 1.23% Y-T-D. The Northern Trust Global Sustainability Index Fund (GSIF) increased 0.45% for September and is up 4.84% Y-T-D.
  • The Balanced Fund decreased 0.23% in September, and is up 1.08% Y-T-D. The Target Annuitization Date (TAD) 2020 was down 0.16% in September; TAD 2025 was down 0.18%; TAD 2030 was down 0.20%; TAD 2035 was down 0.19%; and TAD 2040 was down 0.17% in September. These Funds are up 0.15%, 1.10%, 1.36%, 1.64% and 2.09% Y-T-D, respectively.