Q3 2018 Market Commentary + Outlook

A backdrop of solid economic activity and strong corporate earnings, particularly in the U.S., bolstered global equities throughout the quarter. Tax cuts continued to support corporate profits, but ongoing Federal Reserve interest rate hikes and U.S.-China trade tension have placed notable pressures on the go-forward investment narrative. The U.S. topped regional equity-market results for the third quarter in a row. Large cap stocks outpaced their small cap brethren while growth bested value. Trade tensions reverberated overseas as well, inflicting the greatest damage on the emerging markets.

Non-U.S. markets, as measured by the MSCI EAFE Index, increased 1.4% amid strength in Japan. Emerging markets, as measured by the MSCI Emerging Markets Index, declined 1.1% with significant weakness emanating out of Asia. With trade retaliation between the U.S. and China heating up, China’s currency and stock market continued to weaken. Emerging market currencies, stocks and bonds have faced headwinds in 2018, particularly those in the most vulnerable countries that have large current account deficits and foreign financing needs.

The Fed hiked rates again during the period and increased its forecast for economic growth to 3.1%. Meanwhile the European Central Bank (ECB) announced it would stop bond purchases by year end, signaling the end of an era of unconventional monetary policy.

The U.S. economy, as measured by the change in the Gross Domestic Product, increased 4.2% during the second quarter—the fastest pace in nearly four years. The positive effects of corporate tax cuts and deregulation led to a solid increase in business spending, which helped boost an already strong economy. U.S. unemployment dropped to 3.7%, marking the lowest reading since December 1969. Meanwhile, wage growth grew 2.9%, the highest since June 2009.

To hear more about the market trends this quarter, watch Nicole Rice‘s interview with Chief Investment Officer Darin Richards, or listen to the audio version below.