In our Q2 review, we pointed out the exceptional long term performance of health care stocks, and in particular, the improbably strong performance of pharmaceutical and biotech shares (noting that about 70% of the companies in the Nasdaq Biotechnology Index had not even reported a profit over the prior twelve months).
As we discussed last month, China’s economic slowdown, dithering on interest rates from the US Federal Reserve, and declining commodity prices weighed heavily on financial markets in the third quarter.
Stock market volatility returned in August, as a slowdown in the Chinese economy (and a steep selloff in Chinese stocks) reverberated around the globe.
A few of our clients have requested that we expand on our June post about rising rates. In particular, they’ve asked: “why not switch entirely to bonds with shorter maturity, in order to better protect against rising rates?” We see multiple reasons for not doing so:
Broad equity indexes were essentially flat in the second quarter; the S&P 500 Index (large caps), the Russell 2000 Index (small caps), and the MSCI EAFE Index (international stocks) all advanced less than 1%.
For some time now, most market observers (ourselves included) have expected that the Federal Reserve would eventually raise interest rates from their historically low levels.