In football, coaches remind us, the fourth quarter separates the winning teams from those that will spend history in the footnotes. It has been a bumpy game for the markets and economy in the first three quarters, but going into the fourth quarter, both have the opportunity to finish the year strong.
During the first quarter, the S&P 500 experienced its second correction, a loss of more than 10%, within six months. In the second quarter, the Dow lost over 600 points following the Brexit vote. In spite of these volatile periods, the S&P 500 is up 7.8% year to date. As we enter the fourth quarter earnings growth are expected to advance 5.5% and continue to accelerate into 2017.
As for the economy, data has been similarly challenging. Employment gains this year have ranged between 24,000 and 275,000. Yet, the average monthly gain has been 181,500, which improved to 232,000 in the most recent three months. The next employment report will be released this Friday. Meanwhile, the Bureau of Economic Analysis reported the US economy grew a meager annual rate of 1.1% during the first half of the year.
Equity markets looked poised to finish the year on a high note, with accelerating earnings growth and solid returns through the third quarter. Add to that, the final three months of the year have historically provided the largest returns for the stock market. Economically, recent data continues to show improvement and growth, albeit at a slow rate. Further, data released by the Federal Reserve show the third consecutive quarter for U.S. household net worth, which we will cover in more detail in the Economic & Market Outlook accompanying quarterly statements.
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