Kai W. Hong, CFA
Managing Director & Chief Investment Strategist
Although there were few meaningfully positive developments in the markets, the lack of “bad” news was enough to give buyers confidence that the recent sharp declines in the market were overdone. The completion of negotiations on the 12 nation Trans-Pacific Partnership was a positive while mixed US jobs data and a muted inflation picture gave investors the sense that the Fed may remain on the sidelines for a bit longer. Despite ongoing volatility in the Chinese market, the World Bank expressed confidence in China’s policy buffers and did not believe that there was a risk of a hard landing. However, most growth forecast revisions continued to be down with the IMF lowering its forecast for global growth from 3.3% to 3.1% on weakness in emerging markets. At the corporate level, M&A activity remained robust with Anheuser-Busch InBev’s $104 billion bid for SABMiller (rejected), Dell’s $67 billion takeover of EMC, Aetna’s $37 billion acquisition of Humana, and Pfizer’s potential $150 billion acquisition of Allergan making the headlines. At month end, Q3 US GDP was reported at 1.5%, but underlying strength in consumer spending was seen as positive for economic momentum.
Rebounding strongly from the declines of the prior few months, the Russell 3000 Index finished the month up +7.9%. Energy and Industrials were the leading sectors in the rally. The strong performance of the markets brought many broad US equity markets into the positive for the year with mega cap growth companies faring particularly well. Indicative of the liquidity-driven nature of the rally, US small cap stocks were up, but less so, with the Russell 2000 Index returning +5.6%. Outside of the US, the developed markets were essentially in-line with the US as the MSCI World ex USA Index returned +7.5%. Developing markets continued their relative underperformance and trailed slightly with the MSCI Emerging Markets Index returning +7.1%.