The U.S. economy continued to show momentum during the Third Quarter of 2018.  Corporate earnings were strong, unemployment declined, inflation remains tame and most indicators show improving financial conditions.

The stock market had a good quarter, as measured by the S&P 500, with a 7.2% return.  Small stocks, as measured by the Russell 2000, returned 3.13% during the last three months. Growth stocks continued to outpace Value stocks – the Russell 2000 Growth Index gained 9.04% versus 0.90% for the Russell 2000 Value Index. Foreign stocks were up slightly in the third quarter.  The FTSE Developed all cap ex-US index (Europe, UK, Australia and Japan) finished up 1.1%; that index is now down 1.8% for the year.  Emerging markets (China, Taiwan, Brazil among others) declined 1.9% for the quarter, and are down 8.9% for the year.

Bond returns were just barely positive in the third quarter.  The Barclays U.S. Aggregate Bond Index was up 0.04% for the quarter as interest rates moved higher.  The 10-year treasury started the quarter yielding 2.85%, stayed range- bound before ending at 3.07%.  The Federal Reserve has now raised interest rates three times in 2018 and has indicated that one more hike is likely before the end of the year.

 Going forward, we will be watching corporate earnings, as investors have high expectations of solid increases.  Trade disputes (tariffs) and increasing interest rates remain potential headwinds going into the final three months of the year.

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