Global equity markets followed their strong second-quarter showing with positive returns in the third quarter. Economic growth continues to slowly accelerate among major developed economies. In addition, employment remains strong. Large-cap stocks in the S&P 500 index gained +4.5% in the third quarter. Stocks of smaller companies, represented by the S&P Small Cap 600 index, did particularly well. They rose +6.0% for the three months ending Sept. 30.

International stock markets also saw strong positive returns. The MSCI Europe, Australasia and Far East (EAFE) index gained +5.4% in the third quarter. Emerging-market equities outpaced developed markets as they had in the previous quarter and gained +7.9%. The U.S. dollar’s continued weakening during the third quarter added to the momentum.

Bonds were modestly positive, with the Bloomberg Barclays US Aggregate index gaining +0.9% in the third quarter. The Federal Reserve, along with other central banks, is signaling an end to further expansion of their balance sheets as economic conditions continue to improve.

The Financial Engines perspective.

As we observed in the second quarter, global economic conditions and growth prospects continued to improve this quarter. Equity markets responded with positive returns, although volatility was higher in August. The political turmoil in the United States and other western countries adds to the uncertainty about future growth. Given these risks, it is wise to remain diversified at a risk level appropriate for your situation. A diversified portfolio can benefit from unexpected positive developments, just as it can protect against negative surprises. At Financial Engines, we’re monitoring market conditions to keep your portfolio allocation on track. Have questions? Financial Engines advisors are here to help.

© 2017 Financial Engines. All rights reserved. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Financial Engines, Inc. All other intellectual property belongs to their respective owners. Index data is derived from information provided by Standard and Poor’s, Barclays Indices, and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. © 2017 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. All rights reserved. Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.