Student of the Market

Student of the Market

September 2019

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MARKET INSIGHT

Student of the Market: Sept 2019

1

Bond's historic start to the year

U.S. bonds have returned 9.1% YTD through August, the 8th best start to a year since 1926 (94 years). U.S. stocks have returned 18.3% during the same timeframe, the 28th best start to a year since 1926 (94 years).

2

September and October are the most difficult, historically

Historically, the months of September and October constitute the worst two-month period for U.S. stocks, averaging -0.1% since 1926. That is the only two-month period of the year that averages negative returns.

3

Spike in market volatility

Through 8/31/19, there have been 7 trading days in which the S&P 500 has moved by +/-2% or more. Contrast this to last year, when there were 20 trading days where U.S. stocks moved +/- 2%.

4

Industry asset mix has predicted big market moves

Historically, when stock mutual fund and ETF assets relative to bonds reach peaks (above 80%), it's been a bearish signal moving forward. When stock assets are below 70% this has been a bullish signal. Currently, the stock percentage is 72%.

5

Deconstructing market return assumptions and volatility

Investors may achieve the same overall return on their portfolios, but it can vary significantly in how each one gets there (i.e. the volatility of the return pattern). This variability has a big impact on the bull and bear market capture profile of returns.

6

Inverted yield curve and asset class performance

The U.S. yield curve inverted at the end of August for the first time since 2008. Historically, this does not mean asset class performance fades away: on average, both U.S. stocks and U.S. bonds average over 9% in the twelve months following an inversion.

7

Alternative asset class correlation challenge

Alternative asset class correlations with stocks can vary drastically within the mutual fund alternative categories.

Source: Morningstar as of 8/31/19. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

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MARKET INSIGHT

1 Bond's historic start to the year

Stock and bond performance

YTD through 8/31/19

Since 1926, only the start of 7 other years have been better for bonds

18.3%

First 8 Months Last 4 months Next 12 months

22nd best start for stocks since 1926

Stocks

9.1%

8th best start for bonds since 1926

Bonds

1982 1986 1985 1995 1960 1989 1993 2019

17.5 12.8 12.7 12.5 10.0 9.9 9.4 9.1

12.9 2.2 8.4 5.3 1.6 4.3 0.3 ?

16.4 1.4 22.2 4.1 2.6 7.2 -1.5 ?

Source: Morningstar as of 8/31/19. Stock market represented by S&P 500. Stocks represented by the IA SBBI US Large Cap TR Index and US Bonds by the IA SBBI US IT Gov Bond Tr Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index.

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MARKET INSIGHT

2

September and October are the most difficult, historically

Avg 1.9

36 of 93 Sept to Oct two-month

periods have been negative

since 1926

0.5

-0.1

1.2

Two-month periods for U.S. stocks

Average percentage return since 1926

2.8

1.8

2.0

2.2

2.3

1.5

2.9

3.0

3.2

Sept-Oct Aug-Sept Feb-Mar May-Jun

Jan-Feb Oct-Nov Apr-May Mar-Apr Dec-Jan Jun-July Nov-Dec July-Aug

Source: Morningstar as of 8/31/19. Stock market represented by S&P 500. Stocks represented by the IA SBBI US Large Cap TR Index and US Bonds by the IA SBBI US IT Gov Bond Tr Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index.

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MARKET INSIGHT

3 Spike in market volatility

Number of single day stock market returns of +/-2% or more

80

Total +/-2% days S&P 500

72

60

52

55

680 days without a

40

2% trading day

(10/2/03?6/14/06)

310 days without a

2% trading day

35

(11/8/16?2/1/18)

25

20

17 15

0

0

2

22

20

11-day average

since 1950

10 9

6

4

7

7

0

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Average since 1950. Morningstar as of 8/31/19. Stock market represented by the S&P 500 Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index.

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