By Brian Sottak, CFA, CAIA
Research Analyst and Alternatives Specialist
Summary: Global equities shrugged off geopolitical tensions and legislative headlines, posting strong gains in Q3. Returns were driven by a synchronized upswing in global growth, ongoing earnings recovery, and still supportive global monetary policy.
Market Wrap: In the U.S., the S&P 500 rose 4.4% over the quarter amid supportive macroeconomic data, strong earnings, and further weakness in the U.S. Dollar. The positive quarterly performance was the eighth straight positive quarter for the S&P 500. Tech stocks led the charge, returning 8.3% over the quarter. The dollar index fell more than 2.5%, down for a third straight quarter, gold was up over 7%, and WTI crude gained 10%, eclipsing $50 a barrel. Treasuries were weaker with the yield on the 10-year note experiencing its first quarterly increase of the year, while corporate bonds made positive returns, outperforming government bonds.
European stocks rallied in Q3 against a backdrop of positive economic data. The possibility that the European Central Bank may soon reduce its stimulus measures continued to be a focus for the market.
Asian markets were up across the region with Japan showing improved economic data, and politics taking the headlines as Prime Minister Abe called for an election to be held in October.
Emerging market equities were up over 8% in Q3, and have outperformed all asset classes year-to-date. Brazil was the strongest performer among the EM countries, amid reform progress, coupled with a reduced prospect of a return for the leftist Workers Party in the 2018 elections.
The Macro Environment: The global markets remained resilient in Q3, offsetting increased geopolitical tensions with North Korea and controversies surrounding President Trump. Despite the volatility in the legislative headlines, elevated consumer and business sentiment readings suggested some of the post-election optimism has remained intact. Indeed, we continue to be in a market environment of unprecedentedly low levels of volatility (see below).
The S&P 500 is enjoying its longest winning streak since July 2013, pulling volatility down to a record low. There have only been eight days this year where the S&P 500 has moved by more than +/- 1%, the quietest year on record since the early 1960s.
The Fed announced that its balance sheet normalization will commence in October and stressed that the runoff should not have any meaningful impact on policy accommodation. Trump unveiled an ambitious tax plan proposing sweeping tax cuts for individuals and corporations. Lastly, the odds of a Fed interest rate increase in December jumped to around 78%, up from about 34% at the end of August, according to the CME FedWatch Tool.
Conclusion: At Mission Wealth we maintain a long-term perspective, creating portfolios intended to match the long-term financial goals of our clients. We believe our clients will benefit from:
- Continue thinking long-term and avoid letting emotions drive short-term decisions;
- Continue to remain diversified globally across asset classes; and
- Continue to hold the course and remain invested in the markets.
We believe our client portfolios are well positioned to navigate the upcoming time period by following a strategic, long-term approach to investing, and building globally diversified portfolios that are well exposed to benefit from continued global growth. We also maintain a dedicated allocation to less correlated asset classes, such as alternative strategies, which have historically outperformed the stock market during times of heightened volatility and market pullbacks.
Your Client Advisors, and the entire team at Mission Wealth, are here for you around the clock to help you navigate the markets, working together with you and over 850 other families, all with one common theme: “Your goals. Our mission.”