Q3 2015 Market Commentary

October 13, 2015


After four years of generally rising prices, U.S. and developed foreign market equities fell over 10 percent from their recent highs during the third quarter.  This is commonly called a "correction".  Some markets like Germany, Brazil, China and others have fallen into "bear" market territory, declining over 20 percent from their highs.


Corrections are part of normal market behavior.  What was unusual was the length of time between corrections.


Many pointed to worries about global economic growth or the devaluation of the Chinese currency as "causes" of the recent declines.  Seasoned investors know that "reasons" are interesting cocktail party talk, but also know that equity prices are based on expectations of future profits.  Those expectations do change, and the market prices of stocks follow suit.


Investors withdrew $40 Billion from Emerging Markets investments during the quarter.  The last time this happened was the fourth quarter of 2008, right before the beginning of the bull market that has now lasted over 6 years. US stock and bond funds also saw withdrawals of over $90 Billion during the last quarter-$30 Billion of that ended up in developed foreign market stock funds.  Contrarians would point out that this is a positive sign.


Many suggest buying gold in periods of uncertainty.  Gold is down 4.8% year to date and is now down for 5 consecutive quarters, the first time that has happened since 1997.


The Federal Reserve keeps putting off the long-anticipated short term interest rate hike.  Yields on US Government bonds fell while the extra yield required by investors to own riskier corporate bonds went up.


Some may question their investment allocations in tumultuous times like this.  But has the general philosophy of investing changed?  Unlikely.  Capitalism will likely continue to thrive in the future.  Equity markets are unpredictable but produce long-term returns in excess of assets with lesser volatility.  Diversification among the major asset classes of stocks, bonds and cash help us ride out downturns and reduces overall risk.  Emotional decisions are dangerous and discipline is of the utmost importance.


None of those principles have changed, so investment philosophy shouldn't either. ​



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