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Market Commentary

October 2015 Market Commentary: A Major Upside Reversal from the 3rd Quarter Sell-Off

Key Benchmarks: Performance and Characteristics as of 10/31/2015

Source: Bloomberg

October 2015 Highlights

• Global equity markets recover from their 3Q2015 sell-off with Japan and USA leading all regions while Emerging Markets and Europe lagged.  Expectations of global monetary stimuli in the wake of weakening growth activity helped contribute to the recovery.  Investors also interpreted Fed comments that U.S. economic activity seems strong enough to absorb a gradual schedule of rate hikes.
• Within the U.S., large caps outperformed small caps while value performed in line with growth.  Cyclical sectors such as energy, materials, technology, and industrials outperformed defensive sectors with utilities and consumer staples being the biggest underperformers. U.S. REITs were also a strong performer despite the underperformance of other interest-rate sensitive sectors.
• U.S. credit markets recovered from the 3Q sell-off with U.S. high yield outperforming all other fixed income sectors.
• Although industrial commodities were flat for the month, oil prices recovered to the mid-$40/barrel and had rallied as high as $49.  This recovery helped energy credit spreads narrow, although spreads still hover near-term wide levels, indicating that financial stress remains an overhang in this sector.
• With two straight quarters of earnings declines along with a year-over-year drop in revenue growth, earnings recovery will be critical for further market appreciation, especially with the S&P trading near the top of its 10-year valuation range based on forward estimates.

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