Current Thinking

3rd Quarter 2013 Economic & Market Review

Although domestic interest rates fluctuated throughout the quarter, they remained low historically. This continued to be a boon for equity investors who can invest borrowed monies in hope of garnering a higher rate of return. Housing data (higher prices and lower inventories) remained positive. That, along with low inflation (under 2.0%), are making for a stabilizing economy in the U.S. In contrast, in the near-term, the Government shutdown and the uncertainty around the debt ceiling have created a temporary roadblock to economic growth.

Equity Markets
As a result, the U.S. equity market gave back some of its gains as the quarter came to a close, but each of the major market indices provided strong gains. Small-capitalization stocks (+10.2%; Russell 2000 Index) outpaced large-caps (+5.2%; S&P 500 Index) and midcaps (+7.7%; Russell Midcap Index). Growth stocks outperformed value stocks across the capitalization spectrum for the quarter. International developed markets rebounded in the third quarter (11.6%; MSCI EAFE Index) from losses earlier in the year as did emerging markets, represented by the MSCI EM Index, which posted a strong, but more muted return of 5.8%.

Fixed-Income Markets

The broad U.S. investment grade fixed-income market, measured by the Barclays Capital U.S. Aggregate Bond Index, eked out a positive gain of 0.6% for the quarter, but has declined 1.9% for the year-to-date (“YTD”). The net impact of interest rate volatility experienced during the quarter was that longer duration bonds (measured by the Barclays U.S. Long Gov’t/Credit Index) declined further – in posting a 0.8% drop in the third quarter, they have declined 8.7% for the YTD. For the quarter, intermediate high yield (+2.4%) outperformed U.S. intermediate credits (+1.0%) and intermediate U.S. Governments (+0.4%) per the Barclays indices. Cash and cash equivalents continued to return close to 0.0%.

About the Author

Michael Randazzo

As a Senior Investment Strategist, Mike oversees all aspects of portfolio management, including investment policy development, asset allocation policy, investment manager evaluation and capital markets strategy. On an ongoing basis, he also tracks performance measurement and analysis for our clients.


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