Market Update from CIO Dave Klassen - October 2018

MARKETS

  • October brought seasonal volatility. Although companies reported strong earnings in third quarter, some guided down future growth. The S&P 500, which tracks large cap U.S. stocks, decreased 6.84% in October and is up 3.01% Y-T-D. The Russell 2000 Index, which tracks domestic small cap stocks, decreased 10.86% in October, and is down 0.60% Y-T-D.  The International developed equity index (MSCI EAFE), declined 7.96% in October and is down 9.28% Y-T-D. The emerging markets index (MSCI EM) decreased 8.71% in October and is down 15.72% Y-T-D.
  • In October, the bond yield increased, and prices declined; the 30-year U.S. Treasury bond yield increased 20 bps to 3.39%, while the 10-year yield increased 10 bps to 3.15%, and the 5-year yield increased 4 bps to 2.94%.
  • The Barclays Aggregate Index, which is a well-known measure of U.S. Bond prices, decreased 0.79% for October and is down 2.38% Y-T-D.

ECONOMIC AND GEOPOLITICAL HEADLINES

  • U.S. gross domestic product (GDP) in the third quarter of 2018 increased 3.5%, according to the “advanced” estimate released by the Bureau of Economic Analysis. Second quarter 2018 GDP increased 4.2%.
  • The October Purchasing Managers Index (PMI) decreased slightly, to 57.7 from 59.8 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 October, non-farm employment rose by 250,000 jobs, beating estimates of 193,000 and the unemployment rate remained unchanged at 3.7%.  Average Hourly Earnings (wages) increased by 3.1% year-over-year. The monetary policy normalization and Fed plan to raise rates is expected to stay on track.

PERFORMANCE UPDATES

  • Net of all fees, the Equity Fund decreased 7.57% in October and is down 4.65% Y-T-D. The Bond Fund decreased 0.82% in October and is down 2.46% Y-T-D. The Stable Value Fund was up 0.16% for October and is up 1.39% Y-T-D. The Northern Trust Global Sustainability Index Fund (GSIF) decreased 7.55% for October and is down 3.07% Y-T-D.
  • The Balanced Fund decreased 4.68% in October, and is down 3.65% Y-T-D. The Target Annuitization Date (TAD) 2020 was down 0.89% in October; TAD 2025 was down 3.51%; TAD 2030 was down 4.73%; TAD 2035 was down 5.26%; and TAD 2040 was down 5.72% in October. These Funds are down 0.75%, 2.45%, 3.43%, 3.70% and 3.74% Y-T-D, respectively.