October Market Review

November 18, 2015

Shortly after the end of each month, our Chief Investment Strategist David Klassen provides a review of the market and our funds’ performance. Following is a summary of October — 

Markets

  • Global financial markets posted strong gains in October with equities reversing sharp 3Q losses.
  • The S&P 500 ended the month of October up 8.44%, and is now up 2.70% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, was up 5.63% in October, and is down 2.53% YTD.
  • The international developed equity index (MSCI EAFE) was up 7.82% in October, and is up 2.13% YTD. The emerging markets index (MSCI EM) was up 7.13% in October, and is down 9.45% YTD.
  • The Japanese Index (Nikkei 225) was up 9.75% in October, and is up 9.35% YTD.
  • In September, the 30-year bond yield decreased 7bps to 2.92%, the 10-year decreased 10bps to 2.14%, while the 5-year decreased by 15bps to 1.52%. Bond yields move opposite prices, so treasury prices generally increased. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices increased in October, with the Barclays Aggregate Index up 0.02% for October, and up 1.14% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was down 0.14% for October, but is up 1.48% YTD.

Economic & Geopolitical Headlines 

  • The US economy, measured by real gross domestic product (GDP), increased at an annual rate of 1.5% in the third quarter of 2015, according to “advanced” estimates released by the Bureau of Economic Analysis. This deceleration in real GDP follows a relatively strong second quarter when real GDP increased by 3.9 percent.
  • The Federal Reserve met in October, and Chairwoman Yellen reiterated her September comments that the first increase in the federal funds rate will be appropriate when the Fed has seen further improvement in the labor market. The October employment report showed that US job growth surged during the month, exceeding market expectations, and investors anticipate that the Fed will increase rates in December.
  • Economic activity in the manufacturing sector saw another month of slower growth while remaining in expansion, with a reading of 50.1 in October according to the Institute for Supply Management (ISM) versus 50.2 in September, a decrease of 0.1 percentage point. A reading above 50 is considered economic expansion.
  • U.S. job growth continues to increase. This increase of 271,000 jobs was significantly higher than economists’ forecast of 180,000. The unemployment rate decreased 0.1 percentage points from September to 5.0 percent in October. Over the year, the unemployment rate is down by 0.7 percentage points.
 
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