Wall Street wrapped up a strong third quarter on a weak note. Stocks finished September with a second consecutive week of losses. Prices were pulled lower by disappointing US manufacturing data and rising concerns over the euro zone's economy and sovereign-debt issues. Despite ending the quarter on a down note, the S&P 500 index nonetheless returned 2.58% in September and 6.35% over the last three months. This brought year-to-date returns on the US benchmark to 16.44%, which is a lot to be grateful for. While all major US asset classes delivered strong quarterly performance, large caps outperformed small, and value bested growth.
Turning to foreign stocks int’l developed markets, as measured by the MSCI EAFE Index, returned 2.96% in September and 6.92% for the quarter. International small cap stocks beat large caps and value outperformed growth. As in most of the past few quarters, there was significant dispersion in performance at the individual country level. New Zealand (+15.36%) and Germany (+13.93%) were the best performers. At the other end of the spectrum, investors lost money in Japan (-0.84%).
Emerging market returns, as measured by the MSCI EM Index, gained 6.03% in September and 7.74% for the last there months. Emerging market small cap stocks beat large caps and value outperformed growth. All countries (save for Morocco) posted positive quarterly returns and as in the developed markets there was considerable dispersion in their performances. Egypt and India were the best performers with returns of 22.63% and 15.43% respectively. On the other hand, Brazil, China, and the Philippines lagged the leaders returning 4.75%, 4.67% and 4.34% respectively.
Looking at the US dollar, it depreciated against all major currencies, which had a positive impact on the dollar denominated returns of developed market equities. Demand for gold jumped, as the Federal Reserve announced further measures to bolster the economy, therefore its price finished the quarter 10.25% higher. Commodity prices, as measured by DJ AIG Commodity Index, also increased sharply, gaining 9.69% for the quarter.
As far as the bond market is concerned, the benchmark 10-year US Treasury note traded at 1.647% yield at the close of September, down from 1.748% at the end of the prior week. The 30-year bond's yield was 2.839%, down from 2.942% a week ago.
Timothy Geithner is wisely calling for action to strengthen rules for money market funds. One of his ideas would require money market funds to hold loss buffers. Not surprisingly large money market fund sponsors oppose the changes.