After a rally in July, both stocks and bonds turned lower and registered negative returns for the third quarter.  The ongoing challenges of persistent inflation, hawkish central banks, rising interest rates, geopolitical risks, and weak economic data continued to weigh on the broad stock and bond indices.   For the quarter, U.S. large-cap stocks were down (4.9%) and small-cap stocks lost (2.2%).  US value stocks were down (5.6%) underperforming growth stocks, which were down by (3.6%).  Foreign developed stocks lost (9.3%) for the quarter while emerging stocks were down (11.4%).   Core U.S. bonds suffered large losses and were down (4.7%) for the quarter as the Fed increased the Fed funds rate and inflation remained at high levels.  Inflation-sensitive bonds were down roughly (5.2%) and high-yield bonds were relatively flat at down (0.65%).  In general, lower-duration bonds continued to outperform high-duration bonds in a rising interest rate environment.  

In this quarter's commentary we focused on the following topics:

• From TINA to TARA: We discuss the transition from TINA (there is no alternative) to TARA (there are reasonable alternatives). TINA refers to the process of the Federal Reserve driving interest rates so low after the Great Financial Crisis that investors had no alternative but to turn to stocks for income and growth. As interest rates have risen this year there are reasonable alternatives (TARA).  
• Investing Through Tough Times: We review the potential downside for financial markets during recessions and highlight a study showing how stocks perform in the first half of recessions compared to the second half.  We also discuss how markets are relatively efficient at sniffing out downturns and recoveries, and the importance of having an investment strategy in place.
• Can US Outperformance Persist?:  We highlight how stocks in the US have vastly outperformed their global peers since the Great Financial Crisis, and discuss the drivers of the outperformance and whether it can persist going forward.

   
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