This is the first in a two-part blog of our Quarterly Investment Committee Briefing.

So far this year, one of the big stories in global markets was the surprise Brexit vote in the third week of June. Conventional wisdom was that this event was a harbinger of future economic weakness and lower markets. Markets fell a bit on the news; however, as so often happens with conventional wisdom, it was quickly cast aside. By the start of Q3, the S&P 500 had almost recovered to its 2016 high levels. In the weeks that followed, the S&P 500 and several other major stock indexes crept higher… until August 15 when they broke through to an all-time record high level.
 
Market Commentary
U.S. stock markets pulled back a bit at the beginning of September, with markets concerned that signs of a steepening yield curve could give the Fed the political cover it might be seeking to raise rates. By the end of the third quarter, however, these fears seemed less of a concern and the markets resumed their march higher. Overall for the third quarter, the broad U.S. stock market, as measured by the Russell 3000, was up 4.40%.
 
There was speculation earlier in Q3 that the U.S. Federal Reserve might finally raise interest rates, but that speculation was squashed at the Fed’s September meeting. Continuing weak growth in the U.S. GDP was likely the main reason, coupled with the fact that the Fed generally does not like to change policy in close proximity to U.S. presidential elections.
 
Q3 of 2016 was also notable for a change in the U.S. bond markets. After showing a general downward trend that began all the way back in June 2015, 10-year Treasury yields appeared to turn the corner recently. After hitting an individual record all-time low of 1.37% in the first week of July, 10-year U. S. Treasury yields crept higher for the rest of the quarter to 1.60%. The start of a similar trend also occurred in the shorter end of the yield curve; two-year U.S. Treasury yields were at a low of 0.56% in the first week of July, rising to close out the quarter at 0.77%.
 
As for other stock markets, both U.S. small cap and U.S. value stocks did relatively well in Q3 of 2016 — small caps rose 4.40% during the quarter and value stocks rose 3.48%. These moves were mirrored in overseas markets — international small caps rose 8.00% and international value stocks rose 7.69%. Emerging market value stocks were up strongly at 8.16%. The domestic REIT market did not do well this quarter — REITs fell -1.24% in Q3, although they remain up year-to-date at 9.45%.