The lack of volatility is puzzling considering current events...
This year, one of the big market stories has been the lack of volatility. Pullbacks have been incredibly shallow as the market has been grinding upward this year. As of the end of the quarter, it had been about 10 months since the S&P 500 had experienced a 3% drawdown or larger.
The extremely low volatility is bringing more investors back to stocks, and making investors less fearful of equities. These are both good things for momentum, which is performing well this year.
Read the entire Dorsey Wright Q3 market commentary here.
In Brief:
- International equity markets have performed even better than domestic markets. Developed Markets stocks (as measured by the MSCI EAFE Total Return Index) were up 5.5% for the quarter, and 20.5% so far this year. The best spot for equities this year has been Emerging Markets. The MSCI Emerging Markets Total Return Index has risen 28.1% so far this year, and was up slightly over 8% in the third quarter alone.
- Investor sentiment has definitely changed. Tensions with North Korea are high and seem to be escalating. We also had several major natural disasters over the summer. Finally, Washington seems to be having trouble passing a lot of the legislation they had promised to pass. Any one of these events would have caused major market moves just a couple of years ago. Investors are taking news in stride and have been willing to buy weakness to extend trends.
- Second quarter GDP was revised upward to 3.1%, which is a healthy number. The index of leading economic indicators has also been moving higher in a nice uptrend so things look positive heading in to the last three months of the year. That said, we would not be surprised to see some of the economic indicators experience some weakness as a direct result of the hurricanes, and then see them bump up higher later in the year as the rebuilding process takes hold.
Review the full third quarter commentary from Dorsey Wright to find out what they believe "flew under the radar," at the end of third quarter.
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