The Quarter in Review
The quote used in our 1st quarter report was “It is best to rise from life as from a banquet, neither thirsty nor drunken.” We have been investing in accordance with that quote and maintaining a near fully invested stance yet conscious of the growing optimism witnessed in the world markets.
Global markets, especially equity markets, have continued rising with little performance difference between the major equity classes. Emerging markets have continued their rebound this year and now match, looking back over the past 12 months, the equally impressive performance of smaller US companies. Growth companies have continued to lead this year while value-based firms absorb the euphoria experienced immediately after the presidential election.
Fixed income markets recovered slightly in the 3rd quarter. US treasuries treaded water as the Federal Reserve continues their push to normalize monetary policy. International sovereign debt also saw a jump in rates (declining local prices) from deeply negative levels though outperformed treasuries given the dollar weakening relative to most developed currencies. The low rate environment did not prevent corporate debt from continuing to produce strong returns this year as an improving economic outlook continued investors’ push into higher risk debt instruments.
The year 2017 is seeing the first instance of synchronized global growth in over a decade. Barriers to economic activity are falling, business confidence is rising, and capital spending is finally showing strength. Global investors continue to climb the “wall of worry”, reaping the benefits of an improving economic cycle yet continuing to look for some event that may lead to a meaningful correction. We are too.
“But as time passes, we forget the lessons learned, and as the particulars change, we lose sight of the fact that crashes don’t have a single cause that is easy to recognize before the damage is done. Instead, every crash is caused by a unique confluence of usually personal events.”
– Scott Nations
As children, we would build elaborate strands of dominos standing precariously on end. After hours of carefully laying out the path, we would anxiously tip the first in hopes of having it produce the desired chain effect. However, we remember many times when tipping the first domino did not bring about the anticipated chain reaction.