Market Overview | Q3 2014

The S&P 500 continued its winning streak in the 3rdquarter, rising 1.1%, but other global equity indices were unable to follow the lead of U.S. large caps. U.S. interest rates ended the quarter hardly changed from June 30, with the 10-Year Treasury note yielding 2.51%. The Barclay’s Aggregate index (representing domestic investment grade bonds) rose a slight 0.2% for the quarter. Commodities had double digit declines as oil prices sank amidst falling demand and robust output from the U.S.

3q14-stock-and-bond-performance

With a U.S. economy that appears to be picking up, an improving employment picture and an end in sight to Fed stimulus efforts, the U.S. dollar surged during the quarter, gaining more than 8% against the euro and the yen. However, growth remains muted by historical standards. While the unemployment rate continues to decline, labor force participation is at an all-time low. The Fed confirmed in its September meeting that short-term rates should remain low for a “considerable time” after the end of its bond-buying program, which is expected to follow its October meeting. In contrast to the U.S. Fed, the European Central Bank (ECB) and Bank of Japan are moving towards further monetary easing. On September 4, the ECB cut rates and announced an asset purchase program to fight sluggish growth and low inflation.

The gap between large and small company performance in the U.S. widened during the quarter as small caps retreated 7.4% and micro-caps even more (-8.2%). Mega caps were the top performers (Russell Top 50 +3.0%). Growth outperformed value across all market capitalization ranges.

3Q14-World-Asset-Classes

Overseas stocks managed to eke out small gains in local currency terms, but the strength of the dollar erased those gains for U.S. investors. The MSCI EAFE (US$) index of developed countries lost 5.88% for the quarter. Portugal and Austria were weakest, both retreating more than 20% (US$). Emerging markets also fell for the quarter, losing 3.5% (US$). Greece and Russia were hardest hit, with 20.0% and 15.1% declines, respectively.

Municipal bonds rose 0.8% for the quarter, while high yield bonds fell 1.6%. Unhedged international bonds suffered from currency weakness in both developed and emerging markets. The Barclays Global Aggregate ex-US Unhedged fell 5.4%, while local emerging markets gave up 5.66%.

Most asset classes gave back some gains during the third quarter, following multi-year run-ups for most of them. The Russell 2000 index, a measure of domestic small cap stocks, has been particularly weak, trailing the S&P 500 by almost 16% for the year ended September 30. Yet over longer time frames, small cap has significantly outperformed. By broadly diversifying and avoiding overcommitting to any one or two asset classes, investors have the best chance of success, of participating in the long-term growth the markets have to offer, and of achieving their long-term goals.

 

Click here to see the Investment Terminology page for definitions of asset classes and indices used to represent them.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Martha Post
Martha Post

CFA | Principal, Chief Operating Officer

Martha Post, CFA, is a Principal and the Chief Operating Officer for Hewins Financial Advisors, based in Redwood City, CA. Martha oversees Hewins' operations and client service activities and also serves as a member of its Investment Committee, with nearly 30 years of experience in investment management, research and analysis.

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Market Overview | Q3 2014

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