We enter the 4th Quarter with a healthy amount of respect for the issues that could impact markets negatively in the coming months. For starters October has been historically a volatile month for investors. Let’s hope that a return to significant volatility is not in the cards.
Headlining the case for investor jitters is worry about a potential bank crisis in Europe. Second on the hit parade would be concern about volatility caused by the upcoming U.S. elections. And finally, the icing on the proverbial cake is the ever present concern that the Federal Reserve will start to increase interest rates.
One must stay focused however and remember that the quarter just ending produced results that pushed a few of the major indexes to record highs, extending the Bull Run in the stock market well into its seventh year. Also, as one strategist for J.P. Morgan commented . . . “Cash is paying nothing, bonds are paying nothing, and that is funneling money to equities - making me still an equity bull.” Under-standing and applying that basic principle of economics, (which says that if demand for stocks increases, prices will go up) will go a long way in helping to explain why the markets continue to improve.
An astute investor must ask, how long can this upward trajectory continue? This is a fair question, and one that is not easily answered in this fragile recovery that we are experiencing in the U.S. Raising a red flag are experts citing earnings declines in companies that are a part of the S&P 500 Index. It appears that the year-over-year quarterly earnings figures of this group have declined for 6 straight quarters, raising concern about the opportunity for further advances. But all experts (except those making a living from shorting the markets) agree that the U.S. represents the best place to invest taking into consideration the shortcomings of the viable alternatives.
In spite of all this noise, we remain bullish for U.S. markets, and that optimism paid off in the third quarter. For the quarter ending 9/30, all major U.S. indices were positive. The NASDAQ led the field with the Russell 2000 following closely with returns of 9.69% and 9.09% respectively. Technology issues were the primary drivers of the positive returns for these two indexes. The Dow Jones Industrial Average and the S&P 500 Index produced more modest returns . . . they were up 2.11% and 3.31% respectively.
The Barclays Aggregate Bond Index, a bell weather index for fixed income, rose 0.46% in the quarter. And finally, international issues as measured in the MSCI EAFE Index, had a solid quarter with that index logging a 6.43% return for the three months ending 9/30.
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