Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

On the whole, October looked like a perfectly reasonable recovery from the declines of the prior month.  However, end-point results masked significant intra-month volatility as the markets swung from bearishness to bullishness in the blink of an eye.  Despite the Fed’s re-affirmation of their guidance to keep interest rates low for a “considerable time”, macroeconomic concerns in Europe and China gave the bears reasons to sell mid-month.  Better US data (capped by a 3.5% GDP growth reading for Q3) and strong US company earnings reports reignited the rally, and a surprise increase in monetary easing in Japan sustained it.

The US broad market Russell 3000 Index finished the month at +2.8%.  US small cap stocks rebounded strongly from the prior month’s underperformance with the Russell 2000 Index returning +6.6%.  Outside of the US, returns were weaker with the developed market MSCI World ex USA Index returning -1.6% while the MSCI Emerging Markets Index returned +1.2%.

Active manager performance was mixed with the best relative performance coming from overweights to smaller size, low volatility, and stability.  Market volatility as measured by the VIX spiked significantly mid-month before falling back while cross sectional volatility inched up slightly.  That said, at month end both measures remained fairly below their long-term averages.  Volumes increased quite a bit month-over-month but were also below their long-term averages.  In this environment, style was not strongly predictive of relative results as portfolio positioning and individual security selection was more relevant.