Asset Class Reports
Canterbury Review: Third Quarter 2019
Markets Pose Mixed Returns
- Shares in U.S. equity markets fell in early August then edged higher into mid-September to end the quarter in positive territory. Slowdown concerns and continued uncertainty over the U.S.-China trade war have impacted the region. However, the Fed cut rates twice during the quarter and suggested it was prepared to move aggressively if the U.S. economy showed additional signs of weakening.
- International equities advanced in the quarter in their local currencies, but fell slightly for U.S. investors, given the strong dollar headwind. European economies, particularly Germany, have been experiencing a slowdown as escalating trade tensions between the U.S. and China have impacted the region, and a decline in world trade volumes has weighed on growth. Emerging market shares lagged their developed markets counterparts during the quarter.
- As the Fed cut interest rates in July and September, U.S. Treasury bonds delivered positive returns during the quarter. Global growth concerns have created a large bid for government bonds, not only in the U.S., but also in other developed economies. Further stimulus from the European Central Bank resulted in local bond yields moving further into negative territory. Negative-yielding debt represents approximately $17 trillion of the global bond market as of quarter end.
- Both investment grade and high yield corporate bonds generally performed well in the third quarter as investors sought incremental yield. Higher quality corporate credit outperformed lower quality corporate credit, and CCC-rated debt posted negative returns. Investors have tended to avoid the CCC space, given the deteriorating fundamentals of underlying companies.
- Oil markets fluctuated, but moved lower during the quarter as investors assessed the lack of global growth and demand. While geopolitical issues in Saudi Arabia and Venezuela affected oil supply, the lack of optimism over a U.S.-China trade deal had a significant impact on prices.
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