Covenant Weekly Market Synopsis for October 6, 2017

October 9, 2017

Lather, rinse, repeat” say most shampoo bottles. So sayeth the equity markets in this historic run, evidenced by the S&P 500 recording its fourth consecutive weekly gain. In a market that keeps setting new records, the S&P 500 is on the cusp of another. Through Friday, the widely followed index had gone 332 days without a 5% cumulative decline – the second longest such stretch since the 333-day run that ended in November 1994 (Source: William O’Neil). Unless President Trump’s “calm before the storm” comment last week prophesied a market decline of 5% today, by tomorrow we will all be party to yet another record market event. Let the good times roll!

Developed Market equities started the fourth quarter on a strong note, rising 1.3% for the week (16% YTD). Performance of International Developed Market equity indices was more diverse, with European stocks adding 0.4% (+11% YTD) and Japan 1.4% (+10% YTD). Emerging Market stocks rose 2.0% (+30% YTD) and their aspiring cousins, the Frontier Markets, tacked on gains of 1.2% (+22% YTD). Yields on US Treasuries moved higher (as bond prices declined) across the curve, with the annual yield on the 10-year benchmark bond reaching 2.36% (the top end of a 2.1% to 2.4% trading range in place since the end of the first quarter). The US Dollar has rallied for the last 4 weeks, moving higher by 0.8% this past week. A stronger dollar contributed to the decline in WTI Crude (which is priced in dollars), which ended the week down 4.6% at $49.29 per barrel. As noted above, market volatility remains subdued, to say the least. After closing at a record low of 9.19 on Thursday, the VIX Index ended the week slightly higher at 9.65 (versus a post-Financial Crisis level of 16 and a 20-year average of about 20).

For more detail on weekly, month-to-date and year-to-date asset class performance please click here.


Thought Piece – This week’s synopsis is abridged as I spent much of last week finishing an article titled “Diversification: An easy choice, but a difficult decision”.  Admittedly, when stocks are in the midst of a historic late-cycle run this is not as catchy a title as “Dow to hit 30,000” or “S&P 500: There Is No Alternative”.  Yet, market cycles come and go and as difficult as it may be to conceive right now when the good times are rolling, this cycle too will end at some point.  Unfortunately, nobody knows when.  While equities are an important element within a portfolio allocation, it is important not to become so enamored with the asset class that one allows his/her portfolio to become overly concentrated in what has been working lately.  The article explores that concept.  Thoughts and comments, critical and/or constructive are always welcome.

Be well,