Third Quarter 2016: The Calm After the Storm
Global equity markets rose during the third quarter as investors shook off Brexit fears. The S&P 500 returned almost 4.0% while domestic small cap stocks returned 9.0%. Investors in the US were placated by better-than-expected job numbers and evidence of the first broad-based wage rises for all types of US workers for the first time since the Great Recession.
A murky economic and political outlook kept the Federal Reserve from raising rates during the quarter, but Fed officials hinted that they will likely make a second rate hike later in the year. Inflation expectations remain muted and below Federal Reserve targets. Treasury bonds were little changed in the quarter as rates across the yield curve rose only slightly. High-yield and credit-sensitive bonds rose in tandem with equity markets.
Emerging markets securities, both equities and bonds, were the largest gainers among global markets. Investors seemed to be buoyed by a possible political resolution in Brazil and less uncertainty regarding Chinese growth. European markets rose, following volatility introduced by the Brexit vote in the last week of June. Oil prices leveled off during the quarter before ticking up at its end, as the OPEC cartel agreed to a slight reduction of oil production in the next year.