3rd Quarter Commentary

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  • The year-to-date return for the US equity market was significantly higher than those for bonds and international equities.
  • The four best-performing stocks (Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Netflix (NFLX)) year-to-date accounted for 40% of the return of the S&P 500 and the 10 best-performing stocks accounted for fully 54% of the return of the S&P 500. In addition, growth-style stocks enjoyed returns that were dramatically higher than those of value-style stocks

The US labor market is extremely tight at 3.7% unemployment and expected to get even tighter10. This might raise the fear that inflationary pressure on wages could reduce corporate profit margins and therefore earnings.

Rising interest rates
The fear is that if the Fed were to raise rates too quickly or too high, it would contract the availability of credit and trigger a recession. However, the stock market can absorb interest rate increases so long as they are gradual and the Fed appears likely to continue its pattern of increasing rates in 0.25% increments no more frequently than quarterly.

Concerns about tariffs, particularly vis-a-vis China, are frequently cited as a potential threat to the US economy but 70% of the revenues of the S&P 500 are generated domestically, and 73% of offshore revenues are from the Americas rather than Europe or Asia.


The probability that interest rates will continue rising suggests that bond investors will continue to face a headwind. High yield may continue to be the fixed income sector most protected from interest rate increases given that lower-quality credit tends to move in fairly close coordination with the US stock market.


3rd  QTR                 1YR                        3YRS                   5YRS


Stable Income                                       0.50%                3.10%                    3.12%                3.20%

Conservative Income                           1.65%                5.10%                    4.17%                 4.63%

Traditional Pension                              4.12%                 8.80%                    6.25%                 7.35%

Equity Oriented                                    5.34%               10.92%                    6.92%                 8.27%


John E. Ryan, CFA

Acorn Financial Advisory Services, LLC