October 2, 2017

Highlights:

  • Global equity markets turned in another strong quarter led by emerging markets as the global growth backdrop has overwhelmed near-term geopolitical concerns surrounding North Korea. 
  • U.S. fixed income ended slightly up for the quarter but masked some volatility as interest rates dropped in August over geopolitical tensions and D.C. gridlock but then rose following the Federal Reserve’s reaffirmation of the economic environment to taper its balance sheet and raise rates again in December.
  • In the third quarter, volatility came in like a lamb, turned beastly in August, and then pacified at the end of the quarter near its lowest levels for the year.   
  • Risk appetite recovered from the August scare that saw the VIX spike to 15-16 from a low of 9-10 and high yield credit spreads widen ~50 basis points from the 3.1% lows seen in July.
  • Has the ‘Trump trade’ returned?  Small caps and ‘Value’ style of investing rebounded in September following promising signs over tax reform legislation moving forward. 
  • Some political uncertainty has emerged in Europe and Japan, where the former saw the far-right nationalist party enter parliament for the first time in the post-war period while the latter may see an upset of the incumbent Liberal Democratic Party. 
  • Sentiment remains strong for the U.S. macro backdrop and tax reform that results in lower business taxes could provide additional stimulus to the U.S. economy. 
  • The consensus S&P 500 earnings growth for 3Q2017 is expected to be 4.2% led by a recovery in the energy sector, and analysts expect earnings to grow 8% over the next 12 months.  

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