Current Thinking

3rd Quarter 2014 Economic & Market Review

Hiring rose among U.S. employers in September as the jobless rate fell to a six-year low (5.9%) at the end of the third quarter – increasing the odds that the Federal Reserve will hike interest rates in mid-2015. Economists estimate the U.S. economy grew roughly 3.0% in the third quarter compared to 4.6% in the second quarter, yet above its two-year average of 2.2%. U.S. housing affordability may have peaked as higher insurance premiums, increased home values and expected rising interest rates will likely off-set modest wage growth. Globally, sanctions against Russia have hurt Eurozone trade, especially in Germany. Despite global unrest in many oil-producing countries, a supply/demand imbalance and the aforementioned European slow-down curtailed oil prices in the third quarter.

Equity Markets
While the S&P 500 Index has risen for seven consecutive quarters, U.S. small-cap stocks are in a correction. Lower energy prices, an end to quantitative easing and fears of rising interest rates had a negative impact on U.S small-cap value stocks relative to the rest of the market. Large-cap Technology and Healthcare stocks trended upward in the third quarter. U.S. large-cap stocks appreciated in the third quarter (+1.1%; S&P 500 Index) and thus increased their year-to-date (“YTD”) return (+8.3%; S&P 500 Index). However, small-caps fell hard in the third quarter (-7.4%; Russell 2000 Index) and entered negative territory for the YTD (-4.4%). From a style perspective growth outperformed value across the capitalization spectrum in the third quarter. International developed (-5.9%; MSCI EAFE Index) and emerging markets (-3.5%; MSCI EM Index) lagged for the quarter.

Fixed-Income Markets
In the third quarter, long-term bonds (+1.0%; Barclays U.S. Long Gov’t/Credit Index) outpaced intermediate-term bonds (+0.2%: Barclays U.S. Aggregate Bond Index). For the YTD, long-term bonds are up 13.0% compared to intermediate-term bonds which are up 4.1%. Money market returns continued to hover around zero.

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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