U.S. stocks rallied early in the quarter, benefitting from stronger than expected employment numbers, corporate earnings, and monetary support from central banks. Following strong gains in August, U.S. stocks experienced a 10% drawdown but ended the quarter in positive territory.
Emerging markets (EM) equities doubled the returns of European equities, which lagged the rest of the world. EM’s strong performance benefitted from China’s relative success in containing the virus and the reopening of their economy. In Western Europe, concerns of additional lockdown measures weighed on equities. Both EM and international markets benefitted from a weaker U.S. dollar.
U.S. interest rates stayed range-bound across the yield curve as the Fed continued to signal an accommodative monetary policy stance. Many non-U.S. developed rates moved further into negative-yielding territory as global central banks showed no signs of tightening for the foreseeable future.
Investment grade (IG) and high yield (HY) spreads tightened and the corporate bond sector continued to recover from the March 2020 lows. Lower-rated bonds outperformed their higher-rated counterparts as default concerns abated. The U.S. dollar weakened while the Euro appreciated during the quarter. Market participants hypothesize that the Euro’s move higher is related to the ECBs increased willingness to mutually lend, which would result in further stability for the Eurozone.
Commodities and energy-related assets continued to rebound, albeit with elevated volatility. The demand outlook for energy remained subdued as the market assessed the timeframe of a broad-based economic recovery.
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