The recent third quarter of 2015 was the worst performing three months for the markets in the last four years. From peak to the trough the S&P 500 dropped more than 11%, the first drop greater than 10% since 2011. While market volatility is unnerving, rest assured that corrections are natural occurrences during a healthy market.
Here are the returns for five major indices 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%
Volatility in Q3 was driven primarily by two events; fear of global contractions (especially in China), and uncertainty of the Federal Reserve’s rate hike decision. However, we believe the recent pullback as a pause in the continuing bull market and that in 2016 the DOW will eclipse 20,000.
Third quarter corporate earnings forecast have been lowered so extensively that we expect upside revisions and surprises. The U.S. market is performing better than people think, the European market is outperforming, and the Emerging Markets (especially China) continue to outpace the developed markets. The housing sector and auto sector remain strong and we are seeing stabilization in energy. We think a rate hike in December is still coming, and this will be positive for the financial markets. We continue to like the following sectors: Financials, Energy, Health, Technology, Europe and the Emerging Markets.
October has lead performance with a nice bounce, but we predict that volatility may continue. By years-end, however, we expect the markets will produce positive gains.
We want to be the first to wish an wonderful, magical, and healthy holiday season for you and your family.
As always, please feel free to contact us with any questions or concerns.
Sloy, Dahl & Holst, Inc.