October Market Commentary

By Kevin Chambers

After a string of months with positive returns, October was a down month across most markets. The combination of below average earnings reports and the rollercoaster of an election season contributed to the down month. The US stock market (S&P 500) lost -1.8%. In anticipation of an expected interest rate increase later this year, the yield curve on 10-year treasuries increased 13% over the month. This slight steepening of the yield curve caused US Bond markets to also lose money. As a result, the bond market (Bloomberg BC Agg) lost -0.8%. Continued anemic growth in Europe and signs of trouble in the British economy after the Brexit vote contributed to International markets also posting negative returns for the month. The British Pound has been one of the worst performing currencies in the entire world. The MSCI EAFE was buoyed slightly by positive gains in the Japanese stock market but still lost -2% over the month. International bonds lost -4.9% as yields switched from negative to positive over the month. For example, German 10-year bonds are now yielding 0.2%.  Emerging markets continued to increase in value through 2016, squeaking out a 0.2% return month-to-date.

Although the election will dominate the news for the next week, the outcome will most likely not affect financial markets long term. So looking forward, Headwater Investments is focused on the Federal Reserve and the potential interest rate increase in December. The Federal Reserve is trying to walk the line between the threat of inflation and hurting the economy as interest rates increase. As interest rates rise, we could see a market event. Although Headwater Investments portfolios are built to withstand changing market conditions using globally-diversification and inflation protection investments, we will continue to monitor the US and international economic situation.