Market Update
Equity Markets
The S&P 500 pushed through to a new all-time high in October. We have been discussing a similar “wall of worry” for several months that focuses on continued trade uncertainty with China, the path of future Fed rate cuts, some economic uncertainty, and a growing political divide in Washington. Despite those concerns, markets were resilient in October. The fundamentals of the economy continue to show signs of growth and the Fed cut rates for a third time creating conditions that have helped equities grind higher.
Volatility, as measured by the VIX Index, was elevated early in the month (above 20), but it moved steadily lower as October progressed and closed the month in the low teens. We would not rule out higher volatility through year end as several uncertainties remain, but it’s important to note that the market is entering a historically strong period of equity returns.
We have recently discussed a noteworthy change in leadership that occurred in September as value stocks outperformed growth stock and small and mid-cap equities outpaced large-caps. Some of those aspects continued in October as small-caps continued to outperform, but the growth/value differences were more mixed based on the market cap range.
Large-cap growth stocks dominated other categories of equities over the last couple of years, but we have noted in recent months that the value/growth relationship was stretched to historic extremes with the discount that value stocks were trading at compared to the rest of the market. Furthermore, we believed that should this situation revert to more historical norms, value-oriented stocks should benefit. While still too early to call a trend reversal, we have seen some pockets of the market perform better in recent months relative to areas that had dominated for some time.
The numbers for October were as follows: The S&P 500 advanced 2.17%, the Dow Jones Industrial Average gained only 0.59%, the Russell 3000 increased 2.15%, the NASDAQ Composite rose by 3.71% and the Russell 2000 Index, a measure of small-cap companies, improved by 2.63%. Overall, small-caps performed better than large-caps in October. Growth stocks outperformed in the large and small-cap space, but within mid-caps, value outperformed. The Russell 1000 Value Index gained 1.40% compared to the Russell 1000 Growth Index, which advanced 2.82%. We at Clark Capital employ value-oriented measures in our investment process and believe that over a full market cycle, buying quality companies at a good price will be rewarded.
With few exceptions, the U.S. dollar has been strengthening rather steadily since the spring of 2018. This movement culminated in the U.S. dollar hitting its strongest level in late September since the first half of 2017. However, the dollar reversed course in October and weakened, helping international equities advance and outpace the S&P 500 Index.
Emerging market equities, as measured by the MSCI Emerging Markets Index, gained 4.22% in October and the MSCI ACWI ex USA Index, a broad measure of international equities, advanced 3.49% for the month. Those two indices of international stocks still lag their U.S. counterparts year-to-date, but the gap has closed over the last couple of months.
Fixed Income Markets
Despite little movement for the 10-year U.S. Treasury yield during the month, most pockets of fixed income added to already solid gains this year. The closing yield for the 10-year U.S. Treasury for October at 1.69% was only 1 basis point higher than the September close of 1.68%, but that does mask some movement that occurred throughout the course of the month. We continue to believe it will be hard for U.S. rates to move too high with the current amount of global bonds trading at negative yields.
In this environment, fixed income results were as follows: The Bloomberg Barclays U.S. Aggregate Bond Index gained 0.30% for the month, the Bloomberg Barclays U.S. Credit Index advanced 0.57%, the Bloomberg Barclays U.S. Corporate High Yield Index rose by 0.28% and the Bloomberg Barclays U.S. Treasury Index inched higher by 0.07%. TIPS and muni bonds also advanced in October. Most fixed income sectors have shown strong gains through the first 10 months of 2019.
NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes approximately 5,000 stocks, more than most other stock market indices. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indices.
Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.
S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index which includes the 3,000 largest companies in the U.S., based on market capitalization. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $2.0 billion and a smallest of 218.4 million.
Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
Government bonds are guaranteed by the U. S. Government and, if held to maturity, offer a fixed rate of return and fixed principal value.
