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January 2019
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National Non-Operating Observations
The headlines for December revolved around the dramatic sell-off of risk assets across the world. While economic data in the U.S. remains stable or positive, there are growing concerns about the global economy and the impact of slowing growth on various investment markets. Commodity prices and equities have underperformed this year, with stocks showing their worst returns since 2008. Many investors view these as leading indicators of economic activity. Market participants continue to worry about the medium- and long-term impacts of trade tensions between the U.S. and China. Uncertainty increased due to the potential for a disorderly “Brexit,” and the repercussions of the partial U.S. federal government shutdown. How those issues will weigh on economic growth is yet to be seen.
Markets broadly sold off after stabilizing in November. The S&P 500 was down 9.2 percent, the MSCI World Index was down 7.7 percent, and the MSCI Emerging Markets Index was down 2.9 percent. Each index was down for the year and well below where they closed September. Interest rates decreased slightly for the month, with U.S. Treasury rates down 0.28 percent and Municipal rates down 0.20 percent, boosting fixed income investments.
†3Q 2018 Bureau of Economic Analysis third estimate
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

December 2018
Month Over Month Change (bps)
Year Over Year Change (bps)

GDP Growth
Unemployment Rate
Personal Consumption Expenditures
30yr MMD
30yr Treasury
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
Volatility was the key descriptor for capital markets in 2018. After sustained and broad-based increases throughout 2017, 2018 saw four months where the S&P 500 lost ground, including a 6.9 percent drop in October and 9.2 percent drop in December. It was the worst year for stocks since the 2008-09 financial crisis, and the underperformance carried into stock and commodity markets across the globe. Concerns abound that economic growth and corporate earnings are slowing. Other headwinds, like a U.S.-China trade dispute, the risk of a disorderly “Brexit,” and the repercussions of the partial U.S. government shutdown, could further weigh on investments.
For the year, the S&P 500 fell 6.2 percent, the MSCI World Index fell 10.4 percent, and the MSCI Emerging Markets Index dropped 16.6 percent, with each losing significant ground in just the month of December alone (9.2 percent, 7.7 percent, and 2.9 percent, respectively). Fixed income investments, which typically move counter to equities, gained 1.8 percent in December, ending the year essentially flat. A blended portfolio of 60 percent equities and 40 percent bonds lost 5.46 percent for the year.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
After sizeable municipal fund outflows in October and November totaling $9.2 billion, negative flows continued in December, with $2.4 billion leaving the market. However, municipal rates decreased by 0.20 percent, following the decrease of 0.28 percent in U.S. Treasury rates (which act as the benchmark for U.S. borrowers). Short-term rates were up 0.16 percent in December and almost 1.0 percent over the past year, as the Federal Reserve has continued to raise short-term interest rates. The Federal Reserve increased its benchmark another 0.25 percent at its December meeting, and has intimated several interest rate increases for 2019 as well.
Note: Capital markets borrowing levels, as approximated here by the “30-yr U.S. Treasury” and “30-yr MMD Index,” are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. The key measure to track are bond fund flows—money moving into bond funds leads to more cash chasing investment opportunities, boosting prices and reducing yields. Fund inflows generally are moderate and consistent over some time horizon; fund outflows are typically large and sudden, as external events affect investor sentiment, resulting in selling bonds at lower prices and driving yields up.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
National Observations
National Observations
©2018 Kaufman, Hall & Associates, LLC
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