The third quarter of 2014 demonstrated significant divergence in the strengthening of the domestic US economy and the corresponding weakening financial markets. Asset class returns suggested a maturing of the market cycle, with large-cap stocks and mega-cap US stocks in particular the only asset classes producing positive equity returns for the quarter. The returns generated by the S&P 500 during the quarter were dominated by the 50 largest companies by almost a 3:1 ratio.
This trend toward larger, more established companies suggests a “flight to quality”. During times of market corrections, investors tend to place capital in larger, more established, higher quality investments. The benefit of hindsight suggests this thesis may be accurate, given the first few weeks of October.
Commodities demonstrated significant downward pressure during the quarter, while fixed income remained largely flat. International securities were negative, as was publicly traded real estate.
For a detailed review of the third quarter and the economic and market conditions that have led the way toward the volatile beginning of the fourth quarter, please click below.