October Market Update & Investment Outlook

After a very difficult first half of the year, equity markets rebounded in July and August on investor hopes of an easing in inflation and a Fed pivot or pause. The reprieve was short-lived, however, as stocks tumbled to fresh lows in late September amid further aggressive central bank rate hikes and statements of further tightening to come.

Global stocks (MSCI ACWI Index) fell 6.82% for the quarter and are down 25.63% for the year. The S&P 500 dropped 4.88% for the quarter and is down 23.87% for the year. Developed international markets (MSCI EAFE Index) fell 9.36% for the quarter and 27.09% YTD. Emerging Market stocks (MSCI Emerging Markets Index) dropped 11.57% for the quarter and were down 27.16% YTD.

Foreign stock market returns for U.S. dollar-based investors were worsened by the sharp appreciation of the dollar. The U.S. Dollar Index was up 7.1% for the quarter and a stunning 17.3% on the year, hitting a 20-year high. These dollar gains translate into roughly comparable losses for U.S. dollar-based investors investing in international equity markets.

Core investment-grade bonds didn’t avoid the Q3 losses. The 10-year Treasury yield hit a decade high of 3.97%, causing the Bloomberg U.S. Aggregate Bond Index to drop 4.75%. This puts the “safe-haven” index down 14.61% for the year to date.

It was a challenging quarter for traditional stock and bond investments. While absolute performance was disappointing, we were able to soften the blow somewhat with investments in “non-traditional” asset classes such as flexible bonds, long-short funds, and managed futures strategies. We seek to balance our risk and return objectives by creating diversified portfolios, and many of these “non-traditional” investments have been bright spots in this tough year. The previously mentioned investments were funded from our core bond exposure, outperforming the aggregate bond benchmark in the quarter.

It was a challenging quarter for traditional stock and bond investments. While absolute performance was disappointing, we were able to soften the blow somewhat with investments in “non-traditional” asset classes such as flexible bonds, long-short funds, and managed futures strategies. We seek to balance our risk and return objectives by creating diversified portfolios, and many of these “non-traditional” investments have been bright spots in this tough year. The previously mentioned investments were funded from our core bond exposure, outperforming the aggregate bond benchmark in the quarter.