Quarterly Recap - 3rd Quarter 2014

Market Indices1September 20143Q2014Year-to-Date
S&P 500-1.40%+1.13%+8.34%
Russell 3000-2.08%+0.01%+6.95%
MSCI EAFE-3.84%-5.88%-1.38%
MSCI Emerging Markets-7.41%-3.49%+2.43%
Barclays US Aggregate Bond-0.68%+0.17%+4.10%
Barclays Municipal+0.10%+1.49%+7.58%
Barclays US Corporate High Yield-2.09%-1.87%+3.49%

  • S&P 500 fell in September, but extended gains for a seventh straight quarter.
  • The CBOE's VIX Volatility Index surged 41% during the quarter, the most in three years.
  • Demand for U.S. Treasuries remains robust as global investors seek higher relative yields.
U.S. equity markets retreated in September as investors faced rising volatility amid increased geopolitical risks and prospects for higher rates next year after the Federal Reserve ends its bond-buying program later this month. Increased casualties in Ukraine, heightened economic sanctions against Russia, unparalleled brutality by the ISIS terrorist army and more recently, the unfolding pro-democracy protests in Hong Kong, together served to depress global investor sentiment during the month and, somewhat, the quarter. On a positive note, U.S. 2Q GDP growth was upwardly revised to 4.6% from 4.2% and a continuing trend of low inflation may provide cover for the Fed to keep short-term interest rates near zero longer into 2015. The S&P 500 gained 0.6% during the third quarter (up 1.1% including dividends) for its seventh straight quarterly gain, the longest string of gains since the 14-quarter bullish run that ended in 1998. The S&P 500 ended the month 39 points below its 2,011 all-time high set on September 18th.

Small-cap U.S. companies widely underperformed large-cap stocks during September, the quarter and year-to-date. The Russell 2000 Index, a broad measure of small-cap equity performance, contracted 6.1% last month, lost 7.4% during the third quarter and is down 4.4% YTD. The index is down 8.8% from its July 3rd record high. The Russell Mid Cap Index lost 3.3% in September, trimming its YTD gain to 6.9%.

Value underperformed growth last month and during the quarter. The Russell 1000 Value Index fell 2.1% in September whereas the Russell 1000 Growth Index lost 1.5%. For the quarter, the Russell 1000 Growth rose 1.5%, while its value counterpart lost 0.2%. YTD however, the Russell 1000 Value slightly edged out the Russell 1000 Growth, 8.1% versus 7.9%.

Seven of the ten major sectors rallied in the 3Q with Healthcare (+5.5%), Technology (+4.8%) and Telecom (+3.1%) up the most. Healthcare (+16.6%) and Technology (+14.1%) are also this year's top performers. In commodities, crude oil sank 13% last quarter, its largest decline in two years.

Developed markets outside the U.S. and Canada, as measured by the MSCI EAFE Index, widely underperformed the U.S. during the month (-3.8%) and quarter (-5.9%). Emerging markets, as measured by the MSCI Emerging Markets Index, slumped 7.4% last month, trimming 2014 YTD gains to 2.4%. Turkey, Russia and Taiwan led quarterly declines in emerging markets.

The Barclays U.S. Government Bond Index fell 0.5% last month, cutting its quarterly gain to 0.3% and YTD gain to 3%. Benchmark 10-year Treasury yields rose by nearly 15 basis points during September to 2.49% after falling 18 basis points in August. At the other end of the credit quality spectrum, below-investment grade corporate bonds lost 2.1% last month, trimming its YTD gain to 3.5%, as measured by the Barclays U.S. Corporate High Yield Index. Higher quality investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, fell 0.7% in September, trimming its quarterly return to 0.2%. The Barclays Municipal Index repeated a 0.1% gain for a second month, extending its YTD return to 7.6%.


1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)

This information is compiled by Cetera Investment Management.

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