Equity performance in the third quarter fell “short” of everyone’s expectations, and that is a real understatement. With the S&P 500 Index standing at 2063 on June 30th, consensus opinion was that staying even, or having a slight improvement in the 3rd quarter, would have set the stage for a nice end to fiscal 2015. Well, the optimists would probably say . . . “we still have the 4th quarter to look forward to.” As contrarians, we doubt the last quarter will be able to salvage the year
to positive territory.
At 9/30, the S&P was officially down 6.75% YTD and the smaller-cap index the NASDAQ was down 2.45% for the same time period. The major damage to equity performance was in small cap issues during the 3rd quarter with the Russell 2000 and NASDAQ averages losing 11.92% and 7.35% respectively for the period ending 9/30/2015.
Concern about growth in China’s economy dominated the business news midway through the 3rd quarter. The negative forecasts caused much anxiety in many of the world’s markets. The U.S. Federal Reserve’s position on interest rate movement added fuel to the fire, with its continuance of the ongoing drama entitled “Hike or No Hike.” Rates remain at historic lows, but experts (including Bill Gross the bond wizard – formerly of PIMCO) believe the Fed should act decisively now, arguing that any miniscule interest rate increase contemplated, has already been priced into the markets.
Intraday volatility in the stock markets is now the “norm”, albeit an unwelcomed norm, as opined by even the more seasoned investors. It has become increasingly difficult to tune out the doom and gloom noise created by media, and self-serving investment gurus.
Metrics for the quarter ending September 30 were not encouraging. The Dow lost 7.58% in value, while the broader S&P 500 Index fell 6.94%. As mentioned previously, the small-cap indices, namely the NASDAQ and the Russell 2000, fell 7.35% and 11.92% respectively. International equities, as measured by the MSCI EAFE Index fell 10.23%. Bonds were the only area on the investment spectrum that did not see a significant swing in value during the quarter. The Barclays Aggregate Index rose 1.23% for the three months ending 9/30/2015, which may portend a flight to safety over the coming months.
Our best advice to investors is to confirm that your asset allocation accurately reflects your risk tolerance and investment time horizon during these tumultuous times. Knowing that your plan is still valid and intact can provide some solace during the wild swings in value we expect to experience.
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