The U.S. stock market reached another milestone this quarter, as the current bull market became the longest equity bull market in U.S. history. Since the start of the bull market in March 2009, the S&P 500 has more than quadrupled. Many of the market gains this year have been due to strong gains by technology companies, such as Apple and Amazon. Apple became the first U.S. company to reach $1 trillion in market cap. Second quarter GDP came in at a very strong 4.2%, although some of the gains might be attributed to accelerated delivery of goods ahead of the tariffs.
For the quarter, health care was the best performing sector (up 14.5%). Industrials, which had been lagging, turned around and had a very strong quarter (up 10%). Energy and materials were the worst performing sectors, ending basically flat.
Smaller U.S. stocks underperformed larger stocks. However, year-to-date, smaller stocks are still outperforming, in part because they are more domestically focused than larger companies and not as affected by the global trade tensions.
Internationally, developed markets bounced back slightly, but emerging markets continued their slide. In early July, the Trump Administration followed through with its threat by imposing tariffs on $34 billion of imported Chinese goods. They added tariffs on another $16 billion of Chinese goods in August and $200 billion in September. China has retaliated each time by imposing tariffs on U.S. goods. Consequently, the Chinese stock market has fallen. Concerns about Turkey’s economy further hit emerging markets.
The Federal Reserve raised the federal funds rate by 0.25% in September, the third rate increase this year. The yield on the 10-year Treasury ended at 3.05%. The rising rate environment has been challenging for bonds. Short-term rates are now higher than inflation, which hasn’t been the case for 10 years.
With the upcoming election, politics may dominate the headlines. When investing, it helps to avoid focusing on the political noise and instead focus on the underlying corporate fundamentals and economic environment. As always, a well-diversified portfolio is the best plan for long-term growth.
|Index||3rd Quarter 2016||Year-to-date|
|Dow Jones 30||9.63%||8.83%|
|Bloomberg Barclays U.S. Agg Bond||0.02%||-1.6%|
|MSCI EAFE Index||1.42%||-0.98%|
|MSCI EM Index||-0.95%||-7.39%|
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