The Elephants in the Room...
The stock market in the third quarter of 2016 was a bit of a menagerie. Post June’s Brexit vote saw July produce robust returns, August sleepily put in new highs, and September began with a sharp selloff that then mellowed into a calm end of the quarter. Stocks were up, and indeed, all major asset classes were up by quarter’s end.
Let’s quickly look at a few bullets on returns:
- Large cap stocks in the U.S. saw quarterly returns in the 3-4% range, depending on which index you are following.
- Developed markets outside the U.S., and those of Emerging Markets, produced even better returns for the quarter (up 6.4% & 8.7% respectively).
- Global REITS showed decent upside in the quarter (up 1.3%) but are very strong on a year-to-date basis (up 10.2%).
- Commodities had a strong September (oil price surge), a weak quarter (down 3.9%), but a robust year-to-date performance (up 8.9%).
- U.S. Bonds were down in September & just above flat for the quarter.
I know that is a lot of data, but the take-away here is that diversification is once again working and it remains important to own multiple asset classes suited to your individual risk tolerance.
How refreshing to have made it halfway down the page without mentioning the U.S. presidential election or interest rates. Sadly, despite the copious amounts of ink dispensed on these subjects by the media and myself, it must flow a little more to address these elephants! Both are likely to cause more volatility but I do not expect any of it to be long lived. Both are likely to be resolved by year-end. Hanging chads notwithstanding, we should have a President-Elect by early November, and I expect that the Fed will raise rates ¼ of a percentage point in December.
Neither of these elephants should derail the markets in the longer term, and the U.S. remains strong headed into the final quarter of the year. As always, we will be keeping a sharp eye on these and many other issues as they evolve.