As the temperatures have started to fall with the changing of the leaves, so too has the temperature for the stock market. While we all know markets don’t go up forever, watching a flat or downward trend is not as fun as when they are on rise. Is it healthy? Yes. Do we plan for it? Yes. For all practical purposes, overall, we saw a fairly flat third quarter. We have always kept the bigger plan and strategy in mind, so while we take notice of these numbers, a 90-day period does not typically change a longer term strategy. Below we’ve tried to summarize our thoughts on various sectors of the markets and shared some articles we think you might find of some interest.
US Market Update
After a nearly uninterrupted rally from the COVID low on March 23 of last year, the stock market took what amounts to a breather this quarter. At its high point, the S&P 500 had more than doubled off of its low but gave up some gains as the quarter came to a close. In our last monthly update, we mentioned that this was a possibility due to September being a historically weak period. To finish Q3, the benchmark S&P 500 index ended up slightly at +0.23%. Small caps, as represented by the Russell 2000, had the weakest showing out of the three main domestic indexes that we track, finishing -4.60%. Smaller companies tend to be more economically sensitive so their direction will be seen as a tell for the broader market. They have moved sideways since their peak in March of this year and a resolution higher would represent good news for the market overall. Finally, the Nasdaq-100 finished the quarter with a +0.93% return to bring its year-to-date gains to 13.98%. This index is comprised of many of the popular big name technology companies that have dominated the headlines over the last decade-plus so its performance is something to watch moving forward. One thing to keep an eye on: the relationship of technology stocks to interest rates. We will be writing an upcoming blog about this to explain its importance so keep an eye out.
International Market Update
Stop us if you have heard this before: US stocks outperformed their international counterparts. Sticking out like a sore thumb was emerging markets for the second quarter in a row. As we mentioned previously, this is driven by China's government exercising their regulatory powers over the companies that reside within their borders. Adding to those worries, as was heavily reported, was the saga of the real estate development company, Evergrande, facing a difficult road out of their mountain of debt. Many worry about their problems spreading to financial institutions causing a market downturn, but it is too early to tell what the ultimate outcome of this will be. We remain underweight in international stocks in all of our portfolios relative to our benchmark.
Fixed Income Update
It was an uneventful quarter for fixed income as interest rates struggle to find a direction. As a reminder, if interest rates are going up, the market value of bonds is going down. Rising interest rates are typically indicative of strong future economic growth, rising inflation, or both. One thing to note, while rising rates are not good for bonds in the short-term because of the inverse relationship we mentioned above, it would represent a future environment where the interest received on that part of a portfolio does not round to zero. This means that in a strategic allocation with a long time horizon, rising interest rates can provide a boost to the income generating portion of a portfolio down the road.
In Case You Missed It
We wrote a couple blogs that we think you might like:
In recent years there has been a focus on the role of investment advisors to their clients. As Registered Investment Advisors, Continuum Wealth Advisors is bound to a fiduciary standard under the Investment Advisor Act of 1940. Simply, we must always act in your best interest. I say this because this is the definition of a fiduciary. We have never acted in any other manner, so there was never an issue as to what that meant to us and our clients. But, this is what it truly means :
• Put our clients’ best interests before our own, seeking the best prices and terms
• Act in good faith and provide all relevant facts to clients
• Avoid conflicts of interest and disclose any potential conflicts of interest to clients
• Ensure the advice we provide is unbiased, accurate and thorough
Please keep in mind that managing your assets is one of the many services we offer to our clientele. Whether it’s to provide a complete financial analysis, including income & retirement projections, insurance planning (both life and long-term care) or tax advice and preparation, we are here to guide you through whatever questions you have. Planning is a process – let us help you refine it.
As always, please feel free to contact us if you’d like to talk about your portfolios or any other financial matter. Enjoy the rest of autumn and we’ll be talking soon.
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