The third quarter closed on a much different note than it began, with strong returns for energy and finance stocks advancing 1.9% and 1.7%, respectively, for the week. The theme of change carried over into market capitalization with the constituents of the Russell 2000® Index gaining 2.76%, versus the larger Standard & Poor’s 500® Index adding only 0.72% for the last week of the quarter. This concludes a quarter that witnessed Standard & Poor’s Small Cap 600® gain 5.62%, versus Standard & Poor’s 500® Large Cap gain of 3.96%. Globally, the emerging markets have continued to lead the way, finishing the quarter on a weak note, losing 1.86%. The gain for the quarter was still number one at 9.1%. Among commodities, crude oil and natural gas continued their recent leadership as the price per barrel of crude picked up 1.6%, to close at $51.67 for WTI and $56.79 for the more seaborne Brent. This puts the recovery in crude oil prices for the quarter at 12.23%, ahead of the second strongest commodity performer, the industrial metals, at 10%. The U.S. dollar posted a sharp reversal last week, gaining value against all major and most minor currencies. This late reversal was still not enough to change the overall negative translation impact, as the value of the dollar slipped just over 3% against most G-10 currencies during the third quarter.
In 2014 and 2015, investors were haunted by fears that equity prices would not hold up against rising interest rates. Each move toward the normalization of monetary policy brought with it spasms in the equity market, with the Taper Tantrum being perhaps the most notable episode. Remarkably, we appear to have transcended our fear of positive interest rates and money supply growth that more closely follows economic growth. In the third quarter, we witnessed evidence that growth rates globally are accelerating, and with them, revenue and profit forecasts. Doomsayers have been warning that rising employment and surplus liquidity would result in rampant inflation that would then cascade into rising interest rates and falling stock prices, none of which has yet to materialize. So long as we remain confronted by the ‘Wall of Worry’, with apologies to our 32nd President, the only thing we have to fear, is fear itself.
Source: All statistics herein obtained from Bloomberg.
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