Market Update from CIO Dave Klassen - 2019 January

MARKETS

  • Global equity markets surged in January driven by investor optimism over a trade war hiatus and as the Fed turned dovish. The S&P 500, which tracks large cap U.S. stocks, was up 8.01% in January. The Russell 2000 Index, which tracks domestic small cap stocks, the best performing index for the month was up 11.25% in January.  The International developed equity index (MSCI EAFE), increased 6.57% in January. The emerging markets index (MSCI EM) increased 8.76% in January.
  • In January, bond yields decreased, and prices increased; the 30-year U.S. Treasury bond yield declined 2bps to 3.00%, while the 10-year yield decreased 6bps to 2.63%, and the 5-year yield decreased 8 bps to 2.44%.
  • The Barclays Aggregate Index, which is a measure of U.S. Bond prices, increased 1.06% for January.

ECONOMIC AND GEOPOLITICAL HEADLINES

  • U.S. gross domestic product (GDP) in the third quarter of 2018 increased 3.4%, according to the "third" estimate released by the Bureau of Economic Analysis. Second quarter 2018 GDP increased 4.2%.
  • The January Purchasing Managers Index (PMI) registered to 56.6, a 2.3 percentage point increase from the revised December reading of 54.3, indicating that the economy grew at a faster pace.  Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion.
  • In January, non-farm employment increased by 304,000 jobs, far above economists' estimates of 165,000. However, it came on top of a whopping downward revision for December from 312,000 to 222,000.  The Bureau of Labor Statistics (BLS) was funded during the shutdown period and was operating as usual. Data collection for the household and establishment surveys occurred as scheduled.  The unemployment rate ticked up to 4.0% from the December rate of 3.9%. Average Hourly Earnings (wages) increased 3.2% year-over-year.  November and December non-farm payroll employment were revised by a combined total of 70,000 less than previously reported. After revisions, job gains over the past three months averaged 241,000.
  • Fed left the target range for the federal funds rate unchanged at 2.25 to 2.5 percent.  More importantly, the Fed expressed its willingness to be more patient and be flexible given economic data.

PERFORMANCE UPDATES

  • Net of all fees, all accumulation Funds increased for January 2019.  The Equity Fund was up 8.01% in January 2019. The Bond Fund increased 1.53% in January. The Stable Value Fund was up 0.13% for January 2019. The Northern Trust Global Sustainability Index Fund (GSIF) increased 7.00% for January for 2019
  • o    The Balanced Fund increased 4.99% in January. The Target Annuitization Date (TAD) 2020; TAD 2025; TAD 2030; TAD 2035; and TAD 2040 were all up 1.04%, 3.75%, 5.03%, 5.61% and 6.11%, respectively for January 2019..