Quarterly Market Update: 3Q 2015 By: Gabriel PotterMBA, AIFA® 2015.10.07

Key news stories

“Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

 – Justice Louis Brandeis

The economic fundamentals of the US are sound.  Corporations keep plugging along with cheap borrowing, high cash reserves, and a stable local clientele.  So why are our markets down? Around the world, a slowdown for global growth looks more certain.  The 2nd largest economy, China, has an official growth estimate around +7% G.D.P., but it seems unsupported by data.  China is still growing, both in economic clout and in sophistication, but it hasn’t fully embraced the principles of transparency.  Powerful elements in China promote a culture which values stability; this culture protects existing structures instead of adapting to change.  The lack of institutional and corporate transparency in China became the key economic story last quarter.

On the plus side, long term investors may find attractive buying opportunities.  US equity dividends compare favorably to low US fixed income yields.  Also, international markets still have depressed earnings relative to their 2007-era peak.  If international markets ultimately recover those earnings, it could translate to good bargains for investors willing to suffer through a volatile environment. 


Market pundits noted that this quarter should disabuse US investors from the notion where, just because our country is doing well, we can propel the rest of the world through its growth slump.  About one half of S&P 500 revenues come from overseas. A world slowdown will affect S&P revenues, although US equities offered some protection against greater emerging market weakness.

All index performance values are for previous quarter.

  • US Large Cap Growth - Russell 1000 Growth:  -5.29%
  • US Large Cap Value - Russell 1000 Value:  -8.39%
  • US Small Cap Growth - Russell 2000 Growth:   -13.06%
  • US Small Cap Value - Russell 2000 Value:   -10.73%
  • Developed International Markets – MSCI EAFE:  -10.23%
  • Emerging Markets - MSCI EM:  -17.90%


Long bonds, in particularly, benefitted from the pessimism in the market.  10 year Treasury yields dropped below 2%.  In other words, investors willing to park their money for 10 full years in a relatively safe treasury required only a 1.9% rate of return.  These investors must not be concerned about inflation, which generally exceeds 2%.  Alternatively, they are so adverse to the broad market volatility that the stability of treasuries is enough compensation for the loss of real purchasing power.  On the other spectrum of fixed income, high yield bonds – which often trade like equities with a higher risk and return profile – were the biggest loser in the third quarter.

All index performance values are for previous quarter.

  • Barclays US Aggregate Bond:  1.23%
  • Barclays Capital US Intermediate Credit:   0.54%
  • Barclays Capital US Government:  1.71%
  • Barclays Capital US Gov’t/Credit Long Duration:  2.18%
  • Bank of America/Merrill Lynch High Yield Master II:  -4.90%
  • Citi World Government Bond Index (non USD):  1.71%


China is a significant consumer of global commodities, particularly energy and industrial metals for their expansion and construction.  Given the economic slowdown of a significant buyer, aggregate demand fell for commodities which sharply reduced prices.  In monthly articles, we’ve highlighted the falling prices of oil based on weak aggregate demand and additional global supply from North American hydrofracking and oil sands refining.  Although some North American oil production has pulled due to cheap oil, there is still a large backlog inventory of oil (as a result of extensive drilling, reserve buildup, Iran exports coming online) which should depress prices for awhile longer.  In the face of cheap oil, headline inflation risk was virtually zero, negatively impacting the TIPS market. 

  • Real Estate - FTSE NAREIT All REITs:  0.76%
  • Commodities – Morningstar Long Only Commodity TR:  -16.11%
  • Inflation – Barclays US Treasury TIPS:  -1.15%
  • Hedge Funds – Credit Suisse Hedge Fund:   -2.43% (prior 3 months through 8/31/2015) 
Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

More about Gabriel Potter
Sign up for our Newsletter
Sign up for our Newsletter