"Teach self-denial, and make its practice pleasurable, and you create for the world a destiny more sublime than ever issued from the brain of the wildest dreamer." - Sir Walter Scott
BASKING RIDGE, NJ- After a volatile September, stocks ended the third quarter of 2016 resoundingly in the black. In the third quarter, the S&P 500 gained 3.31%, the Dow grew 2.11%, the NASDAQ added 9.69%, and the MSCI EAFE gained 5.80%.
What drove markets in Q3?
After pulling back in late June after Britain's surprise vote to exit the European Union, markets recovered quickly in the early days of the third quarter.
Though investors were able to enjoy a low-volatility summer, stocks returned to a choppy pattern in September.
Two key areas contributed to a lot of stock market volatility last quarter: monetary policy and the timing of the Federal Reserve's next interest rate hike, and uncertainty around the November elections.
The presidential election is hotly contested and too close to call, giving investors plenty of concern about how the next administration will tackle the many issues facing America. House and Senate races also stand close, giving markets the grim prospect of several more years of filibusters and Washington antics.
Monetary policy also affected markets last quarter as investors speculated on the possibility of a September interest rate hike. Though the Fed chose not to raise rates at the last meeting, December is still in play.
Globally, the majority of the world's central banks are moving toward lower interest rates (the chief exception being the U.S.). While the Fed is trying to raise rates this year and communicating its intentions clearly, the European Central Bank and Bank of Japan are in full-on quantitative easing mode in an effort to boost sagging economic growth.
This tug of war between major monetary players is the source of a lot of uncertainty in the world. Also stoking investor fears is the possibility that central banks have exhausted the limits of what they can do to boost economic growth.