In a Nutshell
Like students invading our college town after a summer away, volatility abruptly returned in August. After commenting last quarter that the market had not strayed more than 3.5% from where it began this year, U.S. stocks dropped 12.5% from their May peak to their August lows and drove the VIX, an index that measures market volatility, to levels not seen since 2011. International stocks fared worse, with emerging markets taking the brunt of the damage.
High quality corporate and Treasury bonds, normally a safe haven during market drops, provided some help during the quarter, up a few percent. High Yield bonds, more closely tied to the stock market, fell in sympathy with stocks.
Commodities also suffered losses during the quarter. Gold, normally considered a safe alternative when other markets are in turmoil, continued its multi-year slide. One bright spot was commercial real estate, which bucked the negative trend and finished positive for the quarter.
It is often said that markets climb a wall of worry and currently there seems to be plenty to cause concern. Although the Federal Reserve has not begun raising interest rates yet, it’s only a matter of time before they begin doing so. Then there is continuing concern about the slowing Chinese economy and that it could drag the rest of the global economy down with it. And some investors are worried that the drop in company profits this year may not be temporary.
On the positive side, energy prices are down and consumers are keeping the U.S. economy stable by taking those savings at the pump and spending more in other areas. Auto sales and home building, two key economic drivers, continue to be strong. And the stock market will enter its 6 month seasonally strong period in November.
As always, we continue to pay attention to the markets and how our client portfolios are positioned. [Read more…] about Q3 2015 Market Update