As I write in
my new weekly commentary
, the third quarter played out largely to script, although there
were some plot twists along the way. On the market front, while
fears over tapering and uneven data hurt stocks in August,
September was a surprisingly strong month. Investors were
the Federal Reserve (Fed)'s decision not to taper
temporary downgrade of the tensions in Syria
From an economic perspective, other than a Fed-induced rise in
rates, the overall economic backdrop remained
broadly the same
as the first half of the year: positive, but uninspiring, growth.
Real rates rose modestly, economic growth was still soft and
inflation stayed low. And the key US economic theme remained a
continued resurgence in manufacturing and a mixed jobs and
Still, as usual, some of
my investment calls
were right, and
some were wrong
. Here's a quick look at how my various strategy suggestions
The third-quarter calls I got right:
Stocks easily beat bonds.
Underweight the utilities & consumer staples
Cyclical stocks generally beat defensive ones - and utilities
and consumer staples struggled.
Increase international exposure.
The equity rally broadened out with international stocks,
including emerging markets, beating US stocks.
Credit outperformed Treasuries.
The third-quarter calls I got wrong:
Underweight the consumer discretionary sector.
Retailers and other consumer discretionary companies continued
to perform well,
despite the weak labor market
Overweight mega and large caps.
Small caps continued to outperform their larger peers.
Looking ahead at this quarter, I'm sticking with a few broad
themes. The fourth quarter looks to be a decent one for the
economy (assuming the economy is left to its own devices) and I
still expect that stocks can finish 2013 higher. In particular,
I'm advocating taking on a bit more cyclical exposure, something
that investors who are harvesting tax losses and are looking for
new places to allocate may want to consider.
Washington remains a wild card
and a risk to my views. While I still expect that
deal to avoid the debt ceiling
will be struck prior to the October 17
deadline, given the prevailing level of acrimony, it's hard to
imagine a broad or long-lasting deal. Instead, it's likely that
Washington will produce another temporary patch,
meaning markets are likely to remain volatile
continued policy uncertainty