Please enjoy market commentary each quarter from Chief Portfolio Strategist James W. Underwood, CFA.

Market Madness

April 2018

The economic backdrop over the first quarter of 2018 generated plenty of headlines as the U.S. stock market narrative abruptly changed. The optimistic market environment throughout 2017, which focused on improving global growth while dismissing anything negative, suddenly shifted in late January with the release of an elevated U.S. wage inflation estimate. As investors were digesting the unexpected inflation scare, growth optimism received a jolt of uncertainty later in the quarter with fears that new tariff announcements could escalate into a broader scale trade war with China. Rising inflation concerns, combined with escalating trade tensions sent interest rates higher and stock markets lower. The first quarter of 2018 marked only the eighth quarter in the last thirty years both broad U.S. stock markets and broad U.S. bond markets failed to gain ground.

As market sentiment changed, volatility returned. In 2017, the S&P 500 posted daily moves in excess of 1% on only eight trading days (4 up days / 4 down days). During the first quarter of 2018, the S&P 500 eclipsed the 1% threshold twenty-three times (12 up days / 11 down days), or 37.7% of the trading days. While the spike in volatility felt extreme, as the chart below reflects, 2017 was the exception while the start of 2018 is closer to the norm.

Despite the heightened anxiety related to market volatility, I believe a market breather was essential to stabilize the foundation under the current bull market. As we noted in the 4th quarter 2017 capital market review, the market’s unrelenting momentum during 2017 felt a bit euphoric with markets potentially accelerating faster than economic fundamentals were improving. My hope is the current market breather, combined with continued improvement in corporate earnings, will improve equity valuation levels, creating a healthier investing environment to sustain the equity bull market. However, we caution this improving foundation may not be strong enough yet to fully survive an inflation surprise or economic growth headwind, two risks that cannot be ignored.

Equity Market Review

The U.S. stock market, as measured by the S&P 500, roared out of the gate; however, the tide turned swiftly in late January and the market’s retreat was doubly fast. After peaking on January 29th, up over 7.5% for the year, the S&P 500 collapsed, falling in excess of 10% over the next nine trading days, pulling the year-to-date return down to negative territory. The broad market index bounced around over the second half of the quarter, finishing the period down 0.8% halting the S&P 500’s positive winning streaks at fourteen consecutive months and nine consecutive quarters.


Reviewing sector results, the Technology sector, which accounts for nearly 25% of the S&P 500 Index, came under severe pressure in late March due to privacy-driven regulatory concerns. Despite the poor finish, the Technology sector was the top performer for the quarter, gaining 3.5%. The only other area that outperformed during the period was the Consumer Discretionary sector, climbing 3.1%. Amazon was the primary engine pulling the sector higher as the company advanced over 20% during the quarter and accounts for more than 15% of the sector.

These two outperforming sectors represent nearly 60% of the Russell Growth weighting, resulting in continued dominance by the growth style. For the quarter, Russell growth indices outpaced their value counterparts by over 400 basis points, bringing the cumulative 12-month outperformance to more than 13% across the capitalization spectrum.

Outside the U.S., developed markets followed a similar path as U.S. markets, ending the quarter down -1.4%, as measured by the MSCI EAFE Index. Across Europe, stock markets began the year trending higher, but concerns surrounding U.S. interest rates and uncertainty related to global trade weighed heavily on markets in late March. One of the hardest hit markets was the UK, which dropped 7.3% (MSCI United Kingdom Index) in local terms, but the stronger sterling offset approximately half of these losses for U.S. dollar-based investors. In Japan, strong corporate results were not enough to overcome political controversy surrounding Prime Minister Abe, uncertainty over potential disruptions in global trade and a strengthening yen, sending equity markets lower. However, U.S. dollar investors benefitted from the stronger yen (weaker dollar), offsetting all of the market losses, resulting in a modest 1.0% increase by the MSCI Japan ($) Index.

Fixed Income Review

The Fed, led by new Fed Chairman Jerome Powell, raised the Fed funds rate 0.25% at its March Federal Open Market Committee meeting. Additionally, the Fed appears to be increasingly confident that the U.S. economy can withstand higher interest rates, revising upward their guidance for additional rate hikes in 2018 and 2019. This upward revision combined with the inflation scare in late January, sent yields higher and bond prices lower across the yield curve. The range of quarterly returns for longer duration Treasuries ranged from -0.2% for 2-Year Treasuries to -3.9% for 30-Year Treasuries. Reviewing corporate bonds, a general increase in risk aversion associated with elevated market volatility caused corporate bond spreads to widen, detracting from corporate bond results. In aggregate, the investment-grade taxable bond market, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, declined 1.5% during the first quarter. Outside of the taxable bond market, tax-exempt bonds were not immune from the challenging interest rate environment with the Bloomberg Barclays Municipal Bond Index falling 1.1% for the period.

Satellite Strategies

Finally, reviewing several satellite asset classes, the “head scratcher” award goes to Emerging Market equities. Emerging markets, which are most sensitive to global trade, ended the quarter up 1.5%. Not surprising, Gold was modestly positive as investor “fear” trended higher. On the opposite end of the spectrum, rising interest rates punished REITs and MLPs. Additionally, the Federal Energy Regulatory Commission’s (FERC) revision to disallow an income tax allowance in MLP pipeline rates created additional uncertainty and downside volatility for MLPs.


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Viewpoints are a series of white papers on the way we see life in this financial world we live in today. We hope you will enjoy.

Off to the Races

Written by Jim Underwood, CFA, Chief Portfolio Strategist

As we approach November 8th, I am repeatedly asked, “How will the outcome of the upcoming elections impact investment markets, and which is better for the stock market – Republican leaders or Democratic?” My honest, easy answer (or non-answer) is always – “it depends”. However, let’s see if any broad generalizations can be made based on historical observations.

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Securitas, derived from the latin word for security, is an Article Series by Welch Hornsby, meant to help raise your awareness of the importance of information security.

Smartphone/Tablet Theft 2nd Quarter 2016 Security

Written by Jon Atchison, Information Security Coordinator

While you may not see the stories on major news networks, smartphone theft is big business and you would be surprised to learn that in 2013, 
3.1 million smartphones were reported stolen in the United States. It may also come as a surprise that nationally, just under a third of all robberies involve a smartphone of some kind.

A stolen smartphone (or tablet) represents a win-win for the thief because they have your device and in many cases, they get the information inside that device. Identity theft (and fraud) often begins from within a stolen device. Remember that ID theft is merely the stealing of your information. ID fraud occurs when the would-be thief uses your information for financial gain (loans, lines of credit, using your credit card to purchase groceries or gas).

So, ask yourself, “What if my iPhone or iPad (or computer) was stolen? Would I know what to do? Could I track and erase the data on my device?” In answering these questions, the first suggestion would be to learn about your technology and any such capabilities. Knowledge of how you can protect, track and erase your device is an essential first step. Having this knowledge will give you confidence when creating a plan in case your device is lost or stolen. In this article, you will find two scenarios where having a plan is crucial.

  • What to do when a personal device (computer/tablet/smartphone) has been stolen.
  • What to do when someone has used my identity to make a purchase or secure a loan.
    • Stolen card numbers are a more likely event and represent an easier mark for the thief. Stealing enough information about you to secure a loan is a different problem altogether.

Another suggestion would be to prepare yourself for a potentially daunting exercise in perseverance and patience. Living through either scenario is not going to be fun – but executing a well-prepared plan will make the experience much more manageable.

Scenario #1 – Your tablet/phone was lost or stolen while on vacation (or from any location). We will use an Apple product as an example.

Don’t panic – I say that because I assume you have already placed a passcode on the device. This is the FIRST line in the defense of your identity/privacy. If your iPad/iPhone or other tablet has no barrier between it and the general public – everything is fair game to the lucky thief.

Make a Call – If you suspect theft, notify the local authorities and try to retrace your steps in an effort to identify where the device went missing. Also, call your investment advisor, banker, CPA, etc to notify them of the potential theft. Many phishing emails originate from a client’s stolen device.

Track your device – Apple gives you the ability to locate your devices (iPads, Macs, iPhones) via the I encourage you to learn more about how Apple and Android help protect you and the information on your devices.

Change your passwords – Strongly consider changing any password associated with email located on your device. Other password changes could involve banking/credit card apps and shopping apps as well. Definitely change the account password for your AppleID (or Google Play if applicable).

Notify your banks and credit card companies – If you had your bank account(s) and credit card data integrated into your phone through their apps, notify them immediately and request that an alert be placed on your account. They may offer other helpful suggestions as well.

Scenario #2 – What to do when someone has used my identity to make a purchase or secure a loan.

There are fantastic resources that I would like for you to consider when thinking about your response to personal identity theft. The first link below is a more concise approach titled, “What To Do Right Away.” You might want to print this out and have it ready just in case…

The second link is “Taking Charge: What To Do When Your Identity is Stolen” and will help you build a personal recovery plan.

I encourage you to spend some time in these documents and work through them to build a greater awareness of where you have the most exposure.

Identity thieves and fraudsters gain the most from victims who are not prepared. A victim who has a plan, knows their technology and who to call can mitigate much of the risk that comes from a stolen device. Being able to quickly respond to these events will save you time, money and hopefully some sanity.
A premium is often placed on investing in financial markets, our careers and healthy lifestyles. While these are worthy endeavors, we live in a world that requires more diligence in protecting and caring for our privacy and identity. The former usually takes time to realize a return, if any. I believe the latter will most certainly benefit you not only in the short run, but in the long run as well.

Written by Jon Atchison
Information Security Coordinator for Welch Hornsby, Inc.

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