The third quarter of 2018 (3Q18) saw a favorable environment for financial markets despite the tug of war between headlines and more fundamental drivers of financial returns. The United States, Mexico and Canada finalized a new trade agreement, but risks of a trade battle with China persist. Growth in the U.S. continues, with gross domestic product (GDP) registering 4.1% for 2Q18. Internationally, economic growth continues, but there are some notable exceptions.
In financial markets, U.S. equities shrugged off any worries and led the way forward, with large-cap stocks (S&P 500 Index) returning 7.71% and small-cap stocks (Russell 2000 Index) returning 3.58%. International developed stocks (MSCI EAFE Index) were up for the quarter by 1.35%, but emerging market equities (MSCI EM Index) lagged with a return of -1.09%.
On the fixed-income front, 3Q18 U.S. performance was slightly positive as the Barclays Government Credit Index, a proxy for the broad U.S. fixed-income market, produced a return of 0.06%.
We remain committed to time tested strategies of diversification, which reduce volatility and risk. There has been a long period of positive returns, so we must be cognizant of late-cycle risks such as rising interest rates.
Finally, we would like to highlight a recent study of the Pension Boards Annuity Plan options by outside investment experts Northern Trust, which provides PBUCC with global custody services; investment account and reporting services; and treasury services to ensure assets are well protected, and stock and cash positions are accurately recorded. For a more detailed market commentary, please visit the Pension Boards’ website at www.pbucc.org.
Thank you for your confidence in us.