In the third quarter, many factors contributed to heightened market volatility that tested the patience of investors. If one simply read the headlines this year, they might have adopted a pessimistic market outlook and completely missed the 20% gain in U.S. stocks through the first nine months of the year. A few factors contributing to the volatility are listed below:
- The trade and tariff issue received heightened attention again when, on August 1, the Trump administration proposed a further increase in tariffs on virtually all China product imports. The equity markets reacted negatively to the news, resulting in the S&P 500 falling roughly 6 percentage points from the quarter’s high price to the quarter’s low price. In total, though, the S&P 500 Index did returned 1.7% in Q3. Although third-quarter returns were negligible in many asset classes, both equity and fixed-income investors have been rewarded for the year-to-date period with double-digit returns in most of the asset classes.
- Economic weakness is mostly centered in the so-called soft economic data versus the not-so-weak hard economic data. Most of the recession talk has been centered around the "soft" economic data.
- In July, the Federal Reserve cut interest rates for the first time since 2008 and then a second rate cut in September. The market volatility increased as a result of uncertainty around the magnitude and number of further rate cuts. With interest rates falling and earnings growth resuming, the equity risk premium is widening.
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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.