October – 3 in 3
Here is our latest edition of 3 in 3, where we will be covering sector performance, growth vs value and U.S. corporate debt. At Weaver Consulting Group we’ve come to know through our clients that they like to stay informed about the economy and markets, which is why we’ve come up with “3 in 3.”
“3 in 3” is a monthly video series centered around three current market themes for the month with their accompanying data points. At Weaver Consulting Group it’s our goal to provide the maximum amount of value to you and your family. We hope this helps you feel more informed, which allows you to be more confident, so that you may find yourself inspired and worry free in retirement!
The stock market is often broken down into 11 major sectors, representing the overall economy. They are:
- Consumer Disctrectionary
- Consumer Staples
- Information Technology
- Real Estate
As you can see in the first chart year-to-date, healthcare, technology and consumer discretionary stocks are leading the market. That generally happens when you have a very strong economy or a gross domestic product (GDP) reading over 3%. In the second quarter of 2018, we had a 4.2% reading. That makes sense as those stocks are outperforming year-to-date.
But as we start to look through the last three months, you’re starting to see utilities and consumer staples stocks doing a lot better. That generally happens when we expect GDP numbers to start slowing. Potentially, the stock market might be front running that the fourth quarter of 2018 or the first quarter of 2019 might start to show slower GDP readings.
Growth vs. Value
A growth company is anticipated to grow at a rate significantly above the average. Typically, they don’t pay dividends and they reinvest back in to themselves. Generally speaking, those are going to be technology and consumer discretionary stocks. Amazon and Netflix are good examples of those.
A value stock typically trades below their fundamentals and pay high dividends. Generally speaking, those are in the healthcare and financial services sectors. JP Morgan and Wells Fargo are good examples of value stocks.
From one year to the next, growth or value may outperform. In 2009, growth outperformed value by 10%. In 2015, growth outperformed value by 8.5%. But in 2016, when we had a little slower economy, value outperformed by 10%. As the economy picked up into 2017 and 2018, we’re starting to see growth outperform values pretty significantly. That’s because we are getting higher GDP numbers as the economy does better.
U.S. Corporate Debt
A corporate bond is a debt security issues by a corporation and sold to investors. Backing for the bond is usually the payment ability of the company. We really have to watch the credit rating. The credit agencies give an investment grade rating (or lower) based on the backing or general payment ability of that company.
Since about 2000, we’ve seen an explosion of U.S. Corporate Debt. We stand about $6.4 trillion in U.S. Corporate Debt. That’s not an issue in a very good economy but if we start to see the economy falter, that corporate debt could hurt. 52% of U.S. investment grade bonds that are BBB or higher, are one notch away from being junk bonds. That’s also something we are watching very closely.
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October – 3 in 3