Q3 2015 Market Summary
In summary, the 3rd quarter can be characterized by two major themes that pressured prices; the China growth concern, and the Fed rate hike situation. It was a tough three months to digest as investor attention was fixated on China and the Fed in a narrative that was largely negative. Though declining -6.44%, the S&P 500 TR proved more resilient than its international counterparts. Global stocks, as measured by the MSCI All Country World Index, fell -9.88% during the three months ending September 30th. The underperformance can be attributed to the near-bear market performance of emerging markets, which declined -18.53%.
The traditionally defensive sectors, utilities and staples, outperformed during the downturn. However, healthcare, a sector normally insulated from higher than average volatility, experienced a double-digit decline. Reasons cited are the negative pricing comments from Hillary Clinton, as well as the reversal of the sector’s significant outperformance in previous quarters.
Regions that are highly dependent on commodities experienced steep losses as natural resource prices continued their slide. Latin America was hit particularly hard as Brazil’s debt was downgraded and Venezuela showed their vulnerability to crude oil prices.
In a shift to higher quality assets, bonds with strong credit ratings performed well through the quarter. This is also known as a ‘flight to quality’ as investors seek haven during times of volatility. The Barclays US Aggregate Bond Index increased +1.23% for the quarter, and the Barclays US Government Bond Index increased +1.71%, respectively. In contrast, the Bank of America High Yield Index declined -4.90%. High yield bonds underperformed as investors grew leery of a global slowdown impacting cash flow and balance sheets of these higher risk issuers.
Cory Nakamura CFA, CFP®
Chief Investment Strategist and Financial Advisor
CFA Charterholder
CERTIFIED FINANCIAL PLANNER™ professional
Honolulu|Hawaii
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.