As the second half of the year kicked in, markets continued to show resiliency and moved higher despite plenty of negative news — the confluence of hurricanes, floods, earthquakes and wildfires, a brewing international confrontation, terrorist incidents in London, Marseilles and Barcelona, just to name a few. Markets seemed particularly vulnerable to the uncertainty of the North Korean nuclear threat and other geopolitical tensions in the Pacific Asia region. Nevertheless, U. S. equity markets reached all-time highs multiple times during the months of July and September. Even the repeated, failed attempts by the Republicans to repeal the Affordable Care Act (“Obamacare”) and the obstacles it presents for advancing President’s Trump’s agenda (i.e. tax reform) could not bring the markets down. We do believe that stocks and bonds have priced in much of the expectations surrounding the market-friendly policies of the Administration and are therefore, closely monitoring these developments as they relate to the financial markets.
The S&P 500’s total return was 4.5% in the third quarter (its eighth straight quarter of gains) and has risen 14.2% on a year-to-date (YTD) basis. On the last business day of the quarter, namely September 29th, the tech-heavy NASDAQ Composite posted its 50th record close for 2017! The Information Technology sector was the best performing stock sector in the S&P in the third quarter, up 8.3 percent, in a fifth-straight quarter of gains. Potentially as a consequence of a number of natural catastrophes, the energy sector bounced back as oil prices rallied 12.0% during the quarter. The Dow Jones Industrial Average was up 5.6% during the three months and 15.5% YTD. To provide additional flavor as to where the Dow stands historically, here is a headline from CNBC newswire: “Dow posts first 8-quarter win streak in 20 years”. The iShares iBoxx High Grade Corporate Bond Exchange Traded Fund (ETF ticker: LQD) was up 1.4%, while its high yield version, the largest “junk-bond” ETF by assets (ticker: HYG), returned 1.7% during the quarter.
We repeat some of the same words used last quarter to express our continuing sentiment that with the S&P hitting new all-time highs and the bull market having run nearly nine years from its 2009 lows, we remain keenly focused on which factors could potentially trigger a correction. Geopolitical and economic cycle risks both bear close watching. On a “lighter” note, according to The Stock Trader’s Almanac, in years following a presidential election, the Dow has been up 11 times out of 17, and that in the last three such occurrences ending in seven, namely 1987, 1997 and 2007, the market experienced a severe decline in the month of October.
European equities (ETF ticker: EZU) also had another great quarter, up 7.4% in 3Q and an extraordinary 28.1% YTD; Asia-Pacific equities (ETF ticker: AAXJ) were up 7.1% in 3Q and a monumental 35.2% during the first 9 months of 2017. Emerging Markets (ETF ticker: EEM) equities were not to be left behind, up 8.3% in third quarter and 28.6% YTD. It is worth highlighting that some of this overseas outperformance relative to domestic equities comes at the expense of a depreciating U.S. Dollar.
Stay tuned!