Global stock markets posted mixed results for the third quarter, as declines in international stocks contrasted with the gains experienced in the United States.
Then there was the question on everyone’s mind: Is a recession coming? Recession fears across the globe loomed large, with flare-ups in U.S.-China trade tensions, continued uncertainty regarding Britain’s exit from the European Union, and an inverted yield curve in the U.S. making many nervous over the economic outlook.
With all the negative headlines, it may be surprising to some that the stock markets have experienced strong returns for the year. The S&P 500 finished September up 20.6%, the best three quarter performance since 1997.1
In response to muted inflation and concerns over global growth, the Federal Reserve cut rates in July. This was followed by an additional cut after their September meeting, for a total decrease of .50% in the federal funds rate. Interest rate cuts have been a trend for central banks globally2 to support their economies and thus global growth.
Third Quarter 2019 Returns

Source: Morningstar®, data as of September 30, 2019. See disclosure page for more information.
Stock Performance Across the Globe
U.S. large-cap stocks, represented by the S&P 500, gained 1.7% and took the lead among equity asset classes this quarter. Within the large cap segment, growth stocks (Russell 1000 Growth Index, +1.5%) were ahead of value stocks (Russell 1000 Value Index, +1.4%) by a small margin.
Small cap stocks, represented by the Russell 2000 Index, were down -2.4%, underperforming U.S. large cap stocks. Within small caps, value stocks (Russell 2000 Value, -0.6%) held up better than growth stocks (Russell 2000 Growth Index, -4.2%) .
While value lagged within small cap in previous quarters, it has outperformed in the current period.
International developed stocks declined during the third quarter. A strengthening of the dollar relative to other developed-country currencies further hurt U.S. investors in overseas markets. Investments held in foreign currencies are impacted when converted into U.S. dollars, which can have a positive or negative impact in a given period. Although the MSCI EAFE Index was up 1.8% in local currency terms, it fell -1.1% in USD terms.
Emerging markets stocks, represented by the MSCI Emerging Market Index, were down -2.1% in local currency terms and -4.3% in USD terms. An unexpected election outcome in Argentina, and declines in Chinese stocks from continued trade concerns, weighed on emerging markets stocks.
World Asset Classes
Returns for the Third Quarter and YTD 2019

Fed Moves to Cut Rates During Quarter
On the fixed income side, in the face of mounting uncertainty, investors flocked to safer assets. Investment-grade U.S. bonds posted the strongest performance among asset classes this quarter.
Part of the U.S. yield curve remains inverted, with three-month Treasury Bills yielding more than 10-year Treasury Notes. Yields between the 2- and 10-year Treasury Notes briefly inverted in August amid heighted trade fears before returning to an upward slope in September as rates rose across the curve. Yields for both the 2- and 10-year Treasury Notes are lower compared to the end of last quarter (down 14 and 34 basis points, respectively), and yields across the curve finished the quarter lower overall, 3 continuing the decline that has characterized the year so far.
As yields fall, bond prices rise. The Bloomberg Barclays Aggregate Index, representing investment-grade U.S. bonds, posted robust returns and gained 2.3%. Municipal bonds, represented by the BBgBarc Municipal 1–10Y Index, also had a positive quarter, returning +0.8%.
After a strong second quarter, emerging market debt again posted positive returns. The JPM EMBI Global Diversified TR Index, representing bonds denominated in U.S. dollars issued by emerging-market governments, returned +1.5%. High-yield bonds (represented by ICE BofAML BB-B US CP HY Index) also posted solid results, gaining 1.7%.
A Disciplined Approach to Success
Focusing on the daily market headlines can make it tempting to react to the most recent news. However, the news can change quickly.
Knee-jerk reactions are an easy way to fall into the trap of selling low and buying high, all while paying trading costs to do so. Picking when to get in and out of the market is both difficult and ineffective, and increased volatility makes it even riskier.
In the face of volatility, using discipline and time-tested research to guide the investment decision process are the best tools an investor has over the long term. By tuning out the headlines and focusing on long-term goals with a financial advisor, you allow a diversified and disciplined approach to work for, and not against, those plans. Therefore, stay the course and let diversification help smooth out those uncertainties along the way to your long-term goals.
If you’d like to discuss how a more diversified and disciplined approach to investing can affect long-term results, contact Wipfli Financial.
U.S. Stock Market: Russell 3000 Index
International Developed Stocks: MSCI EAFE NR Index
Emerging Markets Stocks: MSCI EM NR Index
U.S. Bond Market: Bloomberg Barclays Aggregate Index
Emerging Markets Bonds: JPM EMBI Global Diversified TR Index
Return data represent past performance and are not indicative of future results. Historical returns of indices do not reflect applicable transaction, management or other applicable fees, the incurrence of which would decrease historical performance results. Index information has been compiled by Wipfli Financial from sources Wipfli Financial deems reliable, but has not been independently verified. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only. Indices are unmanaged. It is not possible to invest directly into an index. Any charts and graphs represented herein are for informational purposes only and cannot in and of themselves be used to determine which securities to purchase or sell, or when to purchase or sell securities.
Source: © [2019] Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.