Granite Group Advisors -

NEWS

2014-10-22 :: 3rd Quarter 2014 Commentary

Looking Back

The 3rd quarter while slightly positive in large cap US stocks, showed some cracks as we ended the quarter.  At the same time Non-US stocks took quite a beating in the 3rd quarter. Developed countries were down 6.4% in the quarter while Emerging markets were down 4.3%.  Here in the U.S. large cap stocks put in a positive quarter however Mid Cap stocks and Small Cap stocks were negative with small caps falling more than Developed Non –US markets.  Growth stocks while lagging Value most of the year had a better quarter across all U.S. Indexes.     

Fixed income:  Got the hint from the Fed that rates raises are coming and the quick selloff happened but then rallied back up a bit as the stock market became more volatile.  Most fixed income assets have contributed positive returns for the year

Absolute Return Hedge Fund of Funds put in a relatively flat quarter however it did outperform Fixed Income thanks to the feds comments on interest rate rises.

Real Estate:  As predicted, the slowdown in real estate is showing itself in many areas.  Year over prices continue to move towards zero.  

Commodities:  With the big move up in the U.S. dollar against all currencies commodities took it on the chin in the 3rd quarter with precious metals taking the biggest brunt of the downturn.  Oil while a bit lower stabilized thanks to all the geopolitical issues around the globe.

 

2014 YTD   (Total Return)

Russell 1000  7.97%  

Mid-cap 6.87%       

Russell 2000 -4.41%

Russell 1000 Value 8.07%     

Mid-cap Value 8.20%     

Russell 2000 Value -4.74%

Russell 1000 Growth  7.89%    

Mid-cap Growth 5.73%    

Russell 2000 Growth -4.05%

MSCI EAFE  -3.63%       

MSCI Emer Mkt 0.26%  

S&P 500   8.34%

Barclays Aggregate 4.10%

 

Looking Forward    

Equities: We have been very moderate in terms of where we think the markets were going to go this year and as we enter the 4th quarter it is looking more and more like that prediction will be very accurate, however after this little correction we saw at the end of September we expect the markets to be positive in this upcoming quarter.  Although most people believe October to be the worst month in the market that is completely false.  October is usually when bear markets end and we expect that to continue for the upcoming month.  Economic data was again mixed during the quarter, however the 2nd qtr GDP came in quite elevated at 4.6%.  When analyzing the data the biggest component was health care spending which was the opposite of what happened in the first quarter.  We expect barely 3% for the next quarter and the foreseeable future.

Fixed income markets:  All things being equal we have begun the slow grind higher on yields.  There may be moments of rally as the stock market become more volatile but it is clear from the fed that they will be moving towards raising rates in 2015. It is no longer a question of if but when.

Commercial & Residential Real Estate:  Real Estate data will continue to slow down as we move into the slowest part of the year for this particular asset class.  We expect prices to continue to move down slowly.  The biggest headwind we see going forward is higher interest rates on mortgages.  This will definitely start hurting the markets buyers but it is truly demographics that will keep an overhang on the Industry.  As we move forward we will see some pickup once the echo boomers start forming households but that may take at least a few more years.  In the meantime we think the quick upturn has ended and will be a moderate to flat line asset for the next few years.

Absolute Return Hedge Fund of Funds We continue to believe that absolute return hedge funds will outpace fixed income for years to come.  More importantly with the best of the equity market behind us HFOF will help dramatically decrease volatility in your portfolio and as all things there time will come again and it looks like that time is coming sooner than later.

Commodities:  The U.S. dollar rally has put a brake on commodities.  As the weakness in the dollar moved commodities to their highest prices on record the strength has undone a lot of that.  At this point we do not expect the dollar rally to continue at the pace it has so far this year.  This will give commodities a chance to stabilize and rebound a bit in the 4th quarter.

 

Have a wonderful Holiday filled season!


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