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Q3 Global Market Returns: US large caps lead the way

Our latest report of asset returns highlights two main themes in third-quarter performance: the global rotation into large cap and a swing to more defensive stocks.

US risk assets continued to fare well over the quarter. US equities led developed markets in both Q3 and year to date (see chart), propelled by above-trend economic growth, robust corporate earnings and weakening US dollar momentum. US equities also benefited from the perception that the US may be less vulnerable to potential trade disruptions than other major economies. The UK continued to lag amid growing Brexit uncertainties.  

Emerging markets also underperformed in both periods, although receding trade worries and a weaker dollar in September helped trim losses by quarter end.

Equity market “winners and losers” in Q3 and YTD

Source: FTSE Russell and Thomson Reuters. All data as of September 30, 2018. Past Performance is no guarantee of future results.

Large-caps stocks outperformed small caps globally, marking a notable reversal for most regions from the trend earlier in the year.

Source: FTSE Russell and Thomson Reuters. All data as of September 30, 2018. Past Performance is no guarantee of future results.

In another sign indicating waning risk appetite, cyclicals lost momentum to defensives in the last three months, especially in the US (see chart). Health care stocks, favored for their lower volatility and greater earnings stability, outperforming across most regions.

Source: FTSE Russell and Thomson Reuters. All data as of September 30, 2018. Past Performance is no guarantee of future results.

Fixed income and commodities

Government bond prices fell globally, as the 10-year US Treasury yield eclipsed 3% on the back of strong US data and diminishing trade and emerging-market contagion worries. High-yield bonds outperformed investment grade bonds.

Trade and China-growth jitters pushed commodities lower in Q3. Oil was the notable exception, as solid demand and tighter supply amid lower Iranian oil exports buoyed prices.

Currency

The US dollar’s ascent lost momentum as Q3 progressed, most notably versus the euro and sterling, although it remained strong against the yen and Chinese yuan. Hard-hit EM currencies stabilized in September after steep declines since March; the strong Mexican peso was the outlier, rising 5.3% versus the dollar. The Turkish lira lost 24.3 %

 

Source: FTSE Russell and Thomson Reuters. All data as of September 30, 2018. Past Performance is no guarantee of future results.

Access our research reports. Or watch Philip Lawlor outline the main points in a short video.

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