Q3 Review: Sometimes Boring Is Good

in Market Commentary by

Quarter 3 has come to a close, and there is plenty to report both from Personal Capital and global markets. The past three months stocks have been relatively dull from day-to-day, global debate surrounding the efficacy of low or negative interest rate policies intensified as the US Fed hinted strongly at a December rate hike, and Deutsche Bank shares are now down almost 50% for the year.

What’s our take on developments this quarter? As we reached $3 billion AUM at Personal Capital, these were a few of our top insights:

• In September, Personal Capital celebrated the five-year anniversary of the launch of our wealth management service and financial dashboard. We also passed $3 billion in assets managed, just six months after reaching $2 billion.
• Day to day, the third quarter was one of the dullest periods in memory for stocks, but final results were quite satisfying. The US Total Stock Market gained 4.4% and international stocks returned 6.6%.
• Rising stock prices in the face of declining earnings highlight the critical effect central bank policy is having on asset prices. Across the globe, debate surrounding the efficacy of low or negative interest rate policies intensified this quarter. In the US, the Fed kept short-term interest rates steady but hinted strongly at a December hike.
• We don’t have a directional outlook for stocks for the remainder of the year. Short-term volatility is likely to increase as we near the election. Valuations create a headwind while sentiment is a bullish factor, in our view.
• Deutsche Bank shares are now down almost 50% for the year, causing some to predict a “Lehman event.” Further troubles for the bank could increase volatility, but we don’t think there is meaningful systemic risk.
• Hillary Clinton remains the heavy favorite to win the presidency, but significant uncertainty remains. It is an important election, but the outcome doesn’t impact our long-term asset class risk and return assumptions, and we urge investors not to let emotion impact portfolios.
• The expansion of index funds has brought another trend – the proliferation of “smart beta.” While smart beta has great potential and useful applications, there are many flavors. Our own approach within US stocks is to more evenly weight size, sector and style factors. We like this because it scores high both empirically and on the common sense test, plus it gives us an opportunity to be more tax efficient.

And that’s not all that happened in the last 3 months. Check out our newly released quarterly report for more updates here: Q3 Quarterly Report.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as the Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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