It’s been a good year for the US stock market. The 3rd quarter was the first slow patch the market has hit. While 3rd quarter earnings are reflecting that slowdown, the major indexes still managed to report out new all-time highs. That even though the small caps briefly moved into the negative for the year before heading north.

However, the best returns have moved off shore to the international and emerging markets. Along with gold, those have been the best performing assets in our portfolio this year.
Several factors/events impacted market performance in the 3rd quarter. The President’s proposed tax cuts played a big role in the return of the small cap stocks. There was a belief that smaller companies would have the most to gain from a tax cut. The congressional wrangling over what to do on taxes will continue to impact the market in the 4th quarter.

The hurricanes were destructive to both property, jobs, and incomes. Storms moving through the Gulf forced gasoline prices higher and gains in energy stocks. The impact of the storms was rained on by the announcement of the revised 3.1% 2nd quarter GDP.

The FED’s determination to raise interest rates was the first speed bump the tech stocks saw in 2016. But that bump only allowed the FANG stocks (Facebook, Amazon, Netflix and Google) to gain altitude and continue to outperform the broader US market. The financial sector jumped back to life as interest rates inched higher.

The FED talk of a late year rate hike led to the resurgence of the US dollar. That dollar strengthening impacted the price of goods being exported. Most of the growth in the S&P has come from companies doing business outside the US.

The FED minutes indicate a determination to raise interest rates in December whether inflation reaches the 2% benchmark or not. There is a belief the FED is worried about low interest rates creating an even bigger asset bubble. Internationally interest rates still continue to lag the expectations of the central banks.

Oh, and there’s North Korea, Iran, Chinese debt, the possible breakup of Spain, twitter, Equifax, the NFL, hurricanes, imploding political parties, more twitter and perhaps, even The End Times. We will continue to manage as though we will live through all of that.