Quarterly Recap - 3rd Quarter 2014
|Market Indices1||September 2014||3Q2014||Year-to-Date|
|MSCI Emerging Markets||-7.41%||-3.49%||+2.43%|
|Barclays US Aggregate Bond||-0.68%||+0.17%||+4.10%|
|Barclays US Corporate High Yield||-2.09%||-1.87%||+3.49%|
U.S. equity markets retreated in September as investors faced rising volatility amid increased geopolitical risks and prospects for higher rates next year after the Federal Reserve ends its bond-buying program later this month. Increased casualties in Ukraine, heightened economic sanctions against Russia, unparalleled brutality by the ISIS terrorist army and more recently, the unfolding pro-democracy protests in Hong Kong, together served to depress global investor sentiment during the month and, somewhat, the quarter. On a positive note, U.S. 2Q GDP growth was upwardly revised to 4.6% from 4.2% and a continuing trend of low inflation may provide cover for the Fed to keep short-term interest rates near zero longer into 2015. The S&P 500 gained 0.6% during the third quarter (up 1.1% including dividends) for its seventh straight quarterly gain, the longest string of gains since the 14-quarter bullish run that ended in 1998. The S&P 500 ended the month 39 points below its 2,011 all-time high set on September 18th.
- S&P 500 fell in September, but extended gains for a seventh straight quarter.
- The CBOE's VIX Volatility Index surged 41% during the quarter, the most in three years.
- Demand for U.S. Treasuries remains robust as global investors seek higher relative yields.
Small-cap U.S. companies widely underperformed large-cap stocks during September, the quarter and year-to-date. The Russell 2000 Index, a broad measure of small-cap equity performance, contracted 6.1% last month, lost 7.4% during the third quarter and is down 4.4% YTD. The index is down 8.8% from its July 3rd record high. The Russell Mid Cap Index lost 3.3% in September, trimming its YTD gain to 6.9%.
Value underperformed growth last month and during the quarter. The Russell 1000 Value Index fell 2.1% in September whereas the Russell 1000 Growth Index lost 1.5%. For the quarter, the Russell 1000 Growth rose 1.5%, while its value counterpart lost 0.2%. YTD however, the Russell 1000 Value slightly edged out the Russell 1000 Growth, 8.1% versus 7.9%.
Seven of the ten major sectors rallied in the 3Q with Healthcare (+5.5%), Technology (+4.8%) and Telecom (+3.1%) up the most. Healthcare (+16.6%) and Technology (+14.1%) are also this year's top performers. In commodities, crude oil sank 13% last quarter, its largest decline in two years.
Developed markets outside the U.S. and Canada, as measured by the MSCI EAFE Index, widely underperformed the U.S. during the month (-3.8%) and quarter (-5.9%). Emerging markets, as measured by the MSCI Emerging Markets Index, slumped 7.4% last month, trimming 2014 YTD gains to 2.4%. Turkey, Russia and Taiwan led quarterly declines in emerging markets.
The Barclays U.S. Government Bond Index fell 0.5% last month, cutting its quarterly gain to 0.3% and YTD gain to 3%. Benchmark 10-year Treasury yields rose by nearly 15 basis points during September to 2.49% after falling 18 basis points in August. At the other end of the credit quality spectrum, below-investment grade corporate bonds lost 2.1% last month, trimming its YTD gain to 3.5%, as measured by the Barclays U.S. Corporate High Yield Index. Higher quality investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, fell 0.7% in September, trimming its quarterly return to 0.2%. The Barclays Municipal Index repeated a 0.1% gain for a second month, extending its YTD return to 7.6%.
1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)
This information is compiled by Cetera Investment Management.
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