The markets just wrapped up their worst quarter in five years. All three major indices entered correction mode during some point in the quarter, meaning they had dropped 10% below their recent highs. For the quarter, the S&P 500, DOW, and NASDAQ all fell at least 7%. Year-to-date, the S&P 500 is down 6.7%, the DOW is down 8.6%, and the NASDAQ is down 2.4%. The DOW is now on a three quarter losing streak for the first time since 2009, the S&P 500 has had back-to-back negative quarters for the first time since 2011, and the NASDAQ broke a ten quarter winning streak. We believe the markets will remain a bit choppy in the near-term.
The focus shifted from the Greek debt crisis to the deceleration of Chinese growth and troubles in emerging markets. During the quarter, China released some disappointing economic data, devalued its currency, and the Shanghai Composite fell 34.1%. China is the world’s second largest economy and has spoiled investors with high levels of growth over the years. According to the World Bank, Chinese GDP is expected to grow 7.1% this year, down from an estimated 7.4% last year. The fear of sub-7% growth spooks investors, and has led to sell-offs in stocks in the materials, industrial, and technology sectors. Plunging commodity prices and high debt levels have also caused major concerns related to emerging markets.
At its September meeting, the Federal Reserve again decided to maintain current interest rate levels. In her remarks, Janet Yellen cited low inflation and the aforementioned global market turmoil as the reasons against raising rates. However, one week later Chair Yellen said that she anticipates raising interest rates by year-end and insisted that that decision will remain dependent on economic data. After watching the market’s behavior following these two speeches, it seems as though investors are ready for a slight rate hike. In the midst of this volatility, we urge our clients to remain patient and focus on the long-term.
Chesapeake Financial Advisors is a fee-only financial planning, investment advisory and tax planning firm with offices in Towson and Columbia, Maryland.