After a strong rally in equity and bond markets in July, both sold off again in August and September. In July there were hopes of a soft landing for the US economy and a possible easing back on the scale of interest rate rises. However, in August the main central banks reaffirmed they would prioritise the fight against inflation rather than supporting growth thus sending markets lower. European investors overlooked the very strong tourism and leisure numbers and factored in more rate rises which forced bond values lower. The US Federal Reserve has been much quicker to grapple with inflation and has taken prompter action that the ECB. The consequent strong dollar US dollar, up some 13.9% year to date versus the Euro, has somewhat protected portfolios of investors from ex-USD currencies.

With so much negativity already priced in, markets may respond very well to the smallest smidgens of positive news flow. Markets have an uncanny ability to discount current events, tending instead to price ahead. The resilience of markets and ability to recover is often underestimated and the best advice for long term investors is to be patient and to remain invested. 

Equities

Defensive segments of the market, including consumer staples and healthcare, held up best while interest-rate-sensitive sectors, including real estate and communication services, led the decline in September. Despite the difficult environment, consumer discretionary and energy stocks were the leaders for the quarter.

Value stocks, which began the year with strong results, cooled off further. Growth stocks were mixed, with strength in the United States but underperformance in Europe and Japan.

Bonds

The 10-Year US Treasury yield briefly moved above 4% during the month for the first time in 12 years but finished the quarter at 3.80% p.a., up 0.83%. 

The 10-Year German bund yield was up 0.74% in September, finishing the quarter at 2.11% p.a.

Corporates held value better than government bonds.

Property

A total of €1.8bn was spent on Irish commercial property deals in the third quarter of this year. That brings the total year-to-date spend to €4.9bn. 

While fund values held steady, Global economic conditions can affect the commercial property market and present liquidity risks to investors at the time when access is most needed.

Alternatives

Brent Crude Oil is down over 16% for the quarter. Gold fell back as the dollar continued to strengthen