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Market Commentary

3rd Quarter 2016 Market Commentary – A Solid (But Uneventful) Quarter

Data Source: Bloomberg

Highlights:

• Note: the following provides 3D’s commentary on the events that shaped 3Q2016 performance.  Here is a link to supplemental charts summarizing key market performance.
• Equity markets were flat in September although more pro-cyclical segments of the market such as small caps and emerging markets were up just over 1%.  Global equities turned in a strong 3Q; however, the bulk of the rally occurred earlier in the quarter post-Brexit vote when the worst case fears following a ‘Leave’ outcome did not immediately materialize. 
• Emerging markets outperformed the developed markets and are handily outperforming for the year.  Emerging markets have benefited from a combination of low valuations, positive business sentiment, and a Federal Reserve that appears to be committed to a “gradual” pace of interest rate hikes. 
• MSCI Value and Quality reversed their earlier year underperformance and outperformed for the quarter, returning 4.6% and 5.2%, respectively.  More defensive and interest-rate sensitive styles such as High Dividend, Low Volatility, and Momentum lagged Value and Quality returning 1.2-1.4% for the quarter. 
• Interest-sensitive assets such as long duration bonds and dividend-focused equities underperformed for the quarter following the Bank of Japan’s announcement to target the long-end of the yield curve, which amounted to a goal of steepening the yield curve between short- and long-term rates. Utilities and telecom were down over 5% during the quarter while U.S. REITs were down 1.3%. 
• Commodities rallied 4% in September led by oil prices following a decision by OPEC nations to curtail production.  Oil prices remain range bound between $40 and $50/barrel as global supply/demand imbalances are slowly corrected.  Energy surrogates such as high yield debt and master limited partnerships are benefiting from the stabilization of commodity prices following the steep drop earlier this year. 

To view the full commentary, click here.

To view quarterly and supplemental charts, click here.