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Market Update: 10-01-18

BEST QUARTER FOR STOCKS SINCE Q4 2013

John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial

Investors endured a flurry of trade headlines and emerging market turmoil in the third quarter, but that didn’t slow down U.S. stocks. The S&P 500 Index rose 7.2% during what has historically been the most volatile quarter of the year (7.7% including dividends), its biggest quarterly gain since the fourth quarter of 2013, its best performance in a third quarter since 2010, and the 11th gain in the past 12 quarters. It is also notable that the S&P 500 did not close up or down 1% on any day during the quarter, only the second time in history that feat has been accomplished during the usually volatile third quarter (1963 was the other time). Here we recap the third quarter and highlight some key factors for markets in the fourth quarter.

STOCK MARKET RECAP

The stock market’s third quarter performance was impressive given the tariffs and trade tensions, but those weren’t the only challenges. Fiscal stresses in Turkey sparked fears of contagion in emerging markets (EM), which entered a bear market in August. The Federal Reserve (Fed) raised interest rates for the eighth time this cycle last week and is on track to hike again in December. Long-term interest rates rose during the quarter, but the yield curve stayed flat in what some believe may be a sign of near-term economic weakness. The upcoming midterm elections introduce policy risk. Add to all that the fact that the third quarter has historically been the worst quarter for the stock market. Stocks sailed right through all of these headwinds, extending the longest bull market ever....

Download the complete PDF with graphs here.

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