Our detailed quarterly market commentary is available here.
We saw continued strong corporate profits, healthy broad-based economic fundamentals, and steady stock market gains in the third quarter. Growth stocks remained the leader in the equity markets. However, after two quarters of strong market gains, we’ve experienced a rocky October to date amid investor concerns about interest rates, trade uncertainty, and reduced global growth expectations. We consider this to be a very normal part of the market cycle.
As we anticipated, the Federal Reserve increased its key policy rate by 0.25% in September. The new benchmark target rate is 2.00-2.25%, making it the eighth rate-hike since December 2015. The Federal Reserve indicated that it is also targeting one additional interest rate increase this year. We expect rates to move higher as the Fed removes its accommodative policy. For the quarter, longer-term US Treasury bonds posted significant negative returns, as is expected in a rising rate environment. Adjustable rate, corporate and high-yield bonds generated positive returns due to a lack of rate risk, higher income and/or tightening credit risk premiums.
As rates move higher, this will generate volatility in the equity markets. The good news is that we have a broad-based, strong economic foundation. This, along with lower tax rates, should sustain growth and investment, while providing support to credit quality and equity markets even in a higher rate environment.