U.S. stock markets hit new all-time highs in the third quarter even as market volatility picked up in the final weeks of September. Corporate commentary turned cautious and profit warnings cited supply chain constraints and margin compression from multiple industries.
European equities significantly outperformed emerging markets (EM) equities. Negative news from China appeared throughout the quarter. China’s move to turn private tutoring companies into non-profit organizations, the ban on children playing computer games for more than three hours a week, and fears around the potential default of a large Chinese property developer weighed heavily on EM equities.
In September, the Fed expressed a slightly more hawkish tone by hinting at implementing an asset purchase taper program by year-end. By moving up the taper timeline, the central bank is signaling adequate economic growth and employment conditions while acknowledging that inflation is meeting or exceeding the 2% target. Chairman Powell also expressed that “rate liftoff” is unlikely during tapering, which insinuates that an interest rate increase will likely not happen until the middle-to-end of 2022.
The treasury yield curve experienced volatility but did not meaningfully change quarter-over-quarter. However, the long end of the yield curve steepened during the last week of September and the first week of October as inflation concerns persisted. Investment grade (IG) and high yield (HY) credit spreads marginally widened over the quarter. The Evergrande credit situation resulted in a selloff across select emerging market debt. In general, spreads remain very low.
Commodities and energy-related assets performed well on a relative basis as global supply constraints resulted in higher prices. Inflation concerns also acted as a tailwind for commodities. The Case-Shiller Home Price Index rose to an all-time high as demand for U.S. real estate reached a fervor pitch.
To view the third quarter reports, click on the links below: