Quarterly Recap - 3rd Quarter 2013

Market Indices1Sept 20133Q2013Year-to-Date
S&P 500+3.14%+5.24%+19.79%
Russell 3000+3.72%+6.35%+21.30%
MSCI EAFE+7.42%+11.61%+16.59%
MSCI Emerging Markets+6.53%+5.90%-4.05%
Barclays US Aggregate Bond+0.95%+0.57%-1.89%
Barclays Municipal+2.15%-0.19%-2.87%
Barclays US Corporate High Yield+0.99%+2.28%+3.73%

U.S. and foreign stocks rebounded in September, extending third quarter and YTD gains as central banks kept their economic stimulus programs intact. Despite a widely expected reduction in the Federal Reserve's $85B monthly asset purchase program, FOMC policymakers surprised global markets on September 18 with a "no taper" stimulus decision. Fed Chairman Ben Bernanke cited a recent "tightening of financial conditions" that could threaten the pace of recovery as a reason for the decision, which led to the biggest one-day price jump in 10-year Treasury notes since 2011, triggering a 0.5% yield decline from its 3% two-year peak on September 3. Stung by concerns over the looming government shutdown, the S&P 500 retreated 2.6% during the second half of September, paring an earlier 5.7% gain. Overall, equity valuations rose as a third straight year of earnings growth continued to lift investor sentiment.

Smaller capitalized U.S. companies outperformed large-cap stocks as the Russell 2000 Index, a proxy of small-cap equity performance, rose 6.4% in September, rallied 10.2% during the third quarter and has returned 27.7% YTD. In a turnaround, growth stocks widely outperformed value for both the month and quarter as the Russell 1000 Growth Index rose 4.5% last month whereas the Russell 1000 Value Index returned 2.5%. During the third quarter, the Russell 1000 Growth Index advanced 8.1%, while the Russell 1000 Value Index gained 3.9%. All ten major sectors rallied in September with Materials (+5.7%), Consumer Discretionary (+5.4%) and Healthcare (+4.4%) gaining the most. For the quarter, Healthcare (+10.3%) and Materials (+8.9%) led, while Energy (-4.4%) was the only sector to decline. On a YTD basis, Consumer Discretionary (+29.1%) and Telecom (+28.5%) are this year's best performing sectors.

Developed markets outside the U.S. and Canada, as measured by the MSCI EAFE Index, widely outperformed domestic indices during the month (+7.4%) and quarter (+11.6%). The EAFE Index strengthened after the mid-August announcement that Europe's 17-nation euro-zone emerged out of its 18 month recession. Emerging markets, as measured by the MSCI Emerging Market Index, also reversed course, posting a 6.5% gain last month after falling 1.7% in August. Emerging markets also rose on a quarterly basis, returning 5.9% during the 3Q versus an 8% pullback during the 2Q and trimmed its YTD loss to 4.1%. Commodities were a mixed bag during the quarter. Gold rebounded over 8.4% from its $1,200/oz. bear market low at the end of the second quarter. Crude oil futures fell 4.9% in September while gaining 6% on the quarter.

In the bond market, the Barclays U.S. Government Bond Index snapped a three quarter decline, returning 0.7% in September and 0.1% during the third quarter. The yield on benchmark 10-year U.S. Treasury notes ended the third quarter at 2.64%, up 12 basis points from the start of the quarter. At the other end of the credit quality spectrum, non-investment grade corporate bonds returned 1% in September and 2.3% on the quarter, as measured by the Barclays U.S. Corporate High Yield Index. Higher quality investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, gained 1% on the month and 0.6% during the quarter. The Barclays Municipals Index posted its best monthly gain since January 2012, returning 2.2% in September, trimming its 3Q downturn to 0.2%.

1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

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