Q3 2015 was the worst performing financial quarter for the markets in the last four years. From the height to the bottom the S&P 500 dropped more than 11%, providing the first pullback greater than 10% since the third quarter of 2011. Although market volatility is unsettling, please bare in mind that corrections are a natural function of a healthy market.
Here are returns for five major indexes through September 30th:
BarCap US Agg Bond + 1.13%
S&P 500 – 5.29%
Russell 2000 – 7.73%
MSCI EAFE (Europe) – 5.28%
MSCI EM (Emerging Markets) – 15.47%
The volatility in third quarter was driven primarily by two happenings; fear of a contraction in global growth (especially in China), and the uncertainty of action by the Fed. However, we think the recent pullback is simply a pause in the ongoing bull market and that the DOW reach 20,000 at sometime in 2016.
Third quarter corporate earnings expectations have been lowered to such an extreme that we expect many upside surprises. The U.S. economy is performing better than people believe, the European economy is growing, and the Emerging Markets (especially China) are still outpacing developed economies. The housing and auto sectors remain strong and we are seeing stabilization in energy. We think a rate hike in December is still imminent, which in our opinion would be positive for the financial markets. We continue to like the following sectors: Financials, Energy, Health, Technology, Europe and the Emerging Markets.
October has begun with a nice bounce, but we predict that volatility may continue for a while. However, by years-end we think the markets will realize a positive return.
We want to be the first to wish you and your family a fantastic, fun, and healthy holiday season.
As always, please feel free to contact us with any questions or concerns.
Sloy, Dahl & Holst, Inc.