October 11, 2017
Third Quarter Market Review
Global equity markets posted another good quarter of returns as economic data continued to point to a healthy global economy. In the U.S., consumer confidence remains buoyant, business investment intentions are rising, and solid earnings growth have continued to drive returns. Elsewhere, Japan equities had a strong quarter as the acceleration in global growth helped lift exports to its biggest gain in four years. In the Eurozone, consumer confidence is at its highest level in more than a decade.
Against this positive economic backdrop, central bankers have continued to indicate that they want to gradually reduce the level of monetary policy stimulus in place. The Fed also continues to suggest that another rate rise is in the cards for December. Meanwhile, the European Central Bank (ECB) looks set to announce a further slowdown in the pace of its own quantitative easing policy.
U.S. equity markets have had a rather smooth and steady climb so far this year, with this quarter proving to be no exception. Those who thought it wise to “sell in May and go away,” or were spooked by the threat of a North Korean attack would have missed out on strong returns over the summer. In their relentless climb higher, the biggest stumble U.S. equities have faced so far this year has been a pullback of less than 3%. Healthy U.S. stock market gains, with low volatility, are being driven by the fact that investors are seeing decent earnings growth come through from corporates with little sign of any near-term recession risk. There is also renewed talk of tax reform from Washington.
Overall, despite all the headline political noise, markets continued to focus on the improving economic fundamentals. While the world worried about North Korea, markets cheered rising company earnings and improving global growth. When we take a step back and filter out the political distraction in the news, we see a world where the risks to economic and corporate profit growth in the fourth quarter of this year look low. Markets will have to contend with the gradual removal of some of the monetary stimulus which has supported them. In the U.S. and Europe, however, this stimulus is being removed because of solid growth, and has been well-telegraphed.
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