District 87 investment portfolio takes hit from December stock market decline

Commerce Trust advisors
Portfolio manager Chris Haag and financial advisor Meghan Meyer from Commerce Trust Co. presented an annual report to the District 87 School Board Wednesday night on the performance of school system’s various investments. (Photo by Howard Packowitz/WJBC)

 

By Howard Packowitz

BLOOMINGTON – The stock market’s worst December performance since the Great Depression was felt locally. District 87 School Board members found out Wednesday night that district investments of some funds that don’t come from taxes took a financial hit at year’s end.

The district invests money in stocks and bonds to help pay for programs including scholarships, summer school, teacher training, and employee medical benefits.

Commerce Trust Company portfolio manager Chris Haag said during an annual report to the board that modest annual returns of a 0.5 percent to 2.2 percent turned negative in December because of the stock market slide.

Haag said the market is doing better so far this year.

“Since January started, we’ve come back quite a bit,” said Haag.

“We’ve actually made back almost half of what we lost,” he added.

Despite moderating economic growth, Haag sees many positives including a strong jobs market, hopes for a U.S. and China trade agreement, and a pause in the Federal Reserve’s plan to raise interest rates.

“We’re pretty neutral across the board. We’re still for using more on domestic than international stocks, and we’re still looking at growth stocks as well,” said Haag.

Commerce sees a recession in about four years, based on a variety of indicators. Haag would recommend immediately reducing stock market holdings if a recession seemed to be a more imminent possibility.

Still there are some warning signs, like a widening of credit spreads.

“Credit spreads are the difference between what corporate bonds pay and the Treasury, which is risk free,” Haag said.

“When those widen, it’s a sign that there’s additional pressure on companies’ financial conditions. It hasn’t gotten to extreme levels yet, but it still bears watching,” he said.

Haag also noted a flattening of the yield curve in which there’s less of a difference between rates of return on shorter- and longer-term U.S. Treasurys. Haag does not see an yield curve inversion, in which rates of return for shorter-term Treasurys exceed rates of return for longer-term Treasurys. An inverted yield curve is considered a prelude to a recession.

Howard Packowitz can be reached at howard.packowitz@cumulus.com

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