Third Quarter 2018 In Review

Stock Market Summary

Looking at broad market indices, the US outperformed non-US developed and emerging markets during the quarter.  

Small caps underperformed large caps in the US, non-US developed, and emerging markets. The value effect was positive in emerging markets but negative in the US and non-US developed markets. 

Real estate (REIT) indices underperformed equity market indices in both the US and non-US developed markets.

US Stocks

The US equity market posted a positive return, outperforming both non-US developed and emerging markets. 

Value underperformed growth in the US across large and small cap stocks.

Small caps underperformed large caps in the US.

International Developed Stocks

In US dollar terms, developed markets outside the US underperformed the US but outperformed emerging markets during the quarter.

Large-cap value stocks underperformed large-cap growth stocks in non-US developed markets; however, small-cap value outperformed small-cap growth.

Small caps underperformed large caps in non-US developed markets.

Emerging Markets Stocks

In US dollar terms, emerging markets posted negative returns for the quarter, underperforming developed markets including the US.   

The value effect was positive, particularly in large-caps in emerging markets. 

Small-caps underperformed large-caps.

Fixed Income

Interest rates increased in the US during the third quarter. The yield on the 5-year Treasury note rose 21 basis points (bps), ending at 2.94%. The yield on the 10-year Treasury note increased 20 bps to 3.05%. The 30-year Treasury bond yield rose 21 bps to 3.19%.

On the short end of the yield curve, the 1-month Treasury bill yield increased 35 bps to 2.12%, while the 1-year Treasury bill yield rose 26 bps to 2.59%. The 2-year Treasury note yield finished at 2.81% after an increase of 29 bps.

In terms of total return, short-term corporate bonds gained 0.71%, while intermediate-term corporates returned 0.80%.

Impact of Diversification

Remember how I'm always reminding you that the rate of return in your portfolio probably won't look like that of the S&P 500 or Dow? Well, I'm going to remind you again.

These portfolios illustrate the performance of different global stock & bond mixes and highlight the benefits of diversification. Mixes with larger allocations to stocks are considered riskier but have higher expected returns over time.

That's all for this week. Next week I'm planning to start a series of posts that explain my approach to investing. Fun!