Market Update: Third Quarter 2005
By Julie Gross, Director, Investment Services
There was an abundance of negative news during the quarter, including disastrous hurricanes and damage on the Gulf Coast, rising oil prices, continued Fed tightening, and announcements of corporate bankruptcies. Despite these events, the equity markets produced positive results for the quarter.
| Returns ending September 30, 2005 (%) | |||||
|---|---|---|---|---|---|
| Q305 | YTD | 1YR | 3YR | 5YR | |
| S&P 500 | 3.6 | 2.8 | 12.3 | 16.7 | -1.5 |
| Dow Jones Industrial Average | 3.4 | -0.3 | 7.2 | 14.2 | 1.9 |
| Russell 2000 | 4.7 | 3.4 | 18.0 | 24.1 | 6.5 |
| MSCI World ex USA | 10.9 | 10.1 | 26.8 | 25.4 | 3.4 |
| Citigroup Gov't/Corp 3-7yr | -0.7 | 0.6 | 1.0 | 3.6 | 6.6 |
| Citigroup Gov't/Corp 1-3yr | 0.2 | 1.1 | 1.2 | 2.2 | 4.6 |
Index returns for periods greater than one year are annualized. Source for returns: Zephyr Associates' Style Advisor program.
All major U.S. stock market indices gained ground during the third quarter, and with the exception of the Dow Jones Industrial Average, produced positive results year-to-date and longer term. The Dow is only slightly down year-to-date.
Short-term interest rates continued to rise due to actions by the Federal Reserve during the quarter and the 10-year Treasury note inched up to 4.3% after starting the quarter at about 4%. The increase in long rates was less than anticipated as a surplus of global savings continued to flow into the U.S. and exert downward pressure on fixed income valuations.
International markets continued to outperform the U.S., producing very strong results for the quarter and for the most recent 12 months. The MSCI World ex USA international stock index increased 10.9% for the quarter and is up almost 27% over the trailing year. These returns were due in part to the strong results of the Asian markets. Beijing's revaluation of its currency and Japan's economy showing positive signs of growth contributed to the strong performance of this index. Latin American markets were also on the upswing due to a positive outlook for many of the region's economies.
Market sectors
Market gains this quarter and year-to-date have been focused predominantly on energy-related stocks, utilities, and certain healthcare stocks. Stocks of companies that utilize a great deal of energy, chemical companies in particular, have done poorly. Energy was the strongest performing sector, with a large 19.4% gain for the quarter. Utilities were next in line producing a 7% return.
Media and consumer services were the only sectors that produced negative returns for the quarter. Losses from major newspapers including the New York Times and the Washington Post, as well as weak results from a handful of retailers, contributed to the weak sector performance.