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Market Data Bank

2Q 2018


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CORRECTION, RECOVERY, FRACTIONAL LOSS

Stocks gained a very robust +14.4% over the 12 months ended June 30, 2018, despite February’s -10%
correction. Stocks had melted up in January 2018, on euphoria following the 12/22/17 passage of the new tax code. Stocks in 2Q 2018 returned to their winning ways, with the S&P 500 posting a +3.4% total return.


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STOCKS NEARLY DOUBLED IN FIVE YEARS

Over the 10-year period ended 6/30/18, the S&P 500 total return index gained +163%. From the financial crisis share-price bottom on March 9, 2009, the S&P 500 total return index through June 2018 gained +389%. It’s the second-longest bull market in post-War history and becomes the longest in July 2019.


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SECTORS SHOW GROWING APPETITE FOR RISK

For the 12 months ended 6/30/2018, the technology sector again was the leader, as it was a year earlier. The laggard sectors — consumer staples, telecom and utilities — are more defensive and less volatile. With economic fundamentals strong, an appetite for risk grew.

When you look back on performance of industry sectors, returns often seems logical and even predictable. But they’re not.


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INDEXES TRACKING 13 ASSET CLASSES

It was a great five years for U.S. stocks! A dollar invested in American blue-chip shares grew to $1.88 — more than twice the return of foreign stock markets — in the five years ended June 30, 2018. U.S. stock market returns were explosive relative to this broad array of indexes representing 13 distinct asset classes.

In last place, was crude oil. Prices broke because of the surge in U.S. supply from improved shale-fracking techniques.

Meanwhile, if you ever watch commercials on financial cable TV for gold or other commodities investments, you may be interested in knowing that gold investments returned a big fat zero over the five years. The dollar was strong, inflation benign, and most commodities were in ample supply.


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APPROACHING THE LONGEST BOOM

At 109-months old, this is the second-longest expansion in modern U.S. history, surpassing the 106-month long expansion of the 1960s, and just 13 months shy of the 120-month boom of the 1990s — the longest ever. With fundamentals strong, this is likely to become the longest boom in modern history.


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FED PLANS INTEREST RATE HIKES

Contrary to popular belief, there is no historic evidence that rising bond yields are bad for stocks. In fact, many episodes of rising bond yields have coincided with a bull market in stocks. Also, the stock market has done just fine when the absolute level of bond yields was much higher than today.

The key to bond yields vs. the stock market is the shape of the yield curve -- the differential in bond yields compared to short term interest rates. When the difference between bond yields and short rates heads towards zero, that’s when the stock market tends to cave in.

Past results may not indicate future performance. Indices and ETFs representing asset classes are unmanaged and not recommendations. Foreign Investing involves currency and political risk and foreign-country instability. Bonds offer a fixed rate of return while stocks fluctuate. Investing in emerging markets involves greater risk than investing in more established markets, such as risks relating to the relatively smaller size and lesser liquidity of these markets, high inflation rates and adverse political developments.

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Callahan Capital Management

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Phone: 970-870-8750
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Email: david@callahancapital.com

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Phone: 303-722-5500
Email: peter@callahancapital.com