October 15, 2018
John Augustine, CFA, Chief Investment Officer
Strong Economy, Mixed Markets
In this piece a quarter ago, we noted that we were experiencing a “strong economy, flat markets.” As you can note from above, we slightly changed that title for the third quarter.
Stocks, particularly domestic stocks, showed some signs of life in the third quarter, led by U.S. large cap stocks. The S&P 500 saw a total return of 7.7% in the third quarter, which was its best quarterly performance since Q4-2013. Even larger companies, as measured by the S&P 100, returned nearly 9%.
Going into the third quarter, it was small and mid-cap stocks that were leading to the upside. That changed in September, as the U.S. Dollar rolled over in value and corporate profit growth continued to surpass estimates for the S&P 500. However, they still had respective 3% and 4% returns in the quarter, while overseas stock indexes continued to lag.
What did not change in the third quarter was the drift higher in interest rates. The yield on the U.S. 2- and 10-year treasury notes are now both higher than the year-over-year rate of consumer inflation for the first time since 2015. In addition, the Fed lifted its Fed Funds rate for the 8th time in the past three years, and is expected to do so several more times through 2019.