The ongoing trade dispute with China and the Fed’s interest rate policy moves dominated the news in the third quarter – much as they did in the prior three months. Despite signs of slowing global growth and cooling consumer sentiment, equity markets ended near where they began. Large-cap stocks in the S&P 500 index gained 1.7% in the third quarter, after weeks of ups and downs. Stocks of smaller companies, represented by the S&P Small Cap 600 index, posted a small loss of 0.2% for the quarter.

International stock markets posted a modest loss, with the MSCI Europe, Australasia, and Far East (EAFE) index dropping 1.1% in Q3. The uncertainty unleashed by the U.S./China trade war, and the chaos surrounding Brexit took a toll on business and investor confidence globally. Despite these headwinds, international stocks are still up 12.8% for the year.

Against this backdrop of political and economic uncertainty, bonds posted another big quarter. As expected, the Fed lowered interest rates. The Bloomberg Barclays U.S. Aggregate Bond Index gained 2.3% in the third quarter, bringing its year-to-date performance to an impressive 8.5%.

The Financial Engines perspective.

The third quarter was mostly a continuation of the narrative in Q2, with economic and political uncertainty contributing to muted investor sentiment. Speculation around the timing of the next recession was a frequent topic in the press as markets reacted to a mix of information without a clear direction. Don’t fall into the trap of trying to predict the unpredictable. Maintaining a diversified and risk-appropriate portfolio is the key to weathering the inevitable gyrations of the market. Focus on the progress towards your goals. Have questions? Financial Engines advisors are here to help.

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