U.S. stocks earned 6% in the third quarter and were up a stellar 21% in the first nine months of 2013. That performance caps off a 145% run-up in the S&P 500 over the past 4½ years, in the face of serious headwinds. Here’s what’s been working, and not working, in 2013.
In the first nine months of 2013, growth stocks, especially smaller growth stocks, have led the way with a 35% return, despite anemic economic growth, rising debt and global social unrest. Large-cap core companies earned 13% and large value earned 17%. Other than these extremes, style returns clustered around 23%, a pretty good place to be. On the sector front, consumer discretionary and health care companies have been hot with returns above 30%, while materials and utilities have not.
In foreign markets, Japan has outperformed the United States with a 27% return, and Europe has matched the United States’ 21% return. The rest of the world lagged, with Latin America losing 4% and Emerging Markets flat.
The most interesting details lie in the cross-sections of styles with sectors, especially if we are interested in exploiting momentum effects. Looking forward to the fourth quarter, I am forecasting winners in large-value consumer discretionary, mid-cap value health care and small-cap value industrials, and laggards in small-cap growth materials, small-cap core utilities & telephone, and large-cap core technology.
To see more details, including my results in forecasting winners and losers for the third quarter, check out the full version of my third-quarter market commentary. The full version also includes a survey and forecast for foreign stocks, special commentary on target date funds and hedge funds, and a link to an amusing new video that exposes the charade of hedge fund due diligence performed via peer groups and indexes.