The ACM Journal 2015 Q3

Portfolio Review

As evidenced by the chart below, the third quarter was nothing short of awful for investors. Practically every segment of the global stock market was down significantly. There were a number of events that contributed to the carnage.

Poster Boys for Profligacy
Early in the quarter, perennial troublemakers Greece and Puerto Rico caused unease by declaring their need for further financial aid. Greece went to the brink, but ultimately did win a third bailout from its European peers. Puerto Rico also announced that it would be unable to meet its debt obligations. There is a lot of legal wrangling about how Puerto Rico will ultimately get out from under its debt burden, which will take years. In the meantime, Puerto Rico represents one more corner of the globe with an uncertain economic situation.

The stock market generally weathered this news without too much impact. However, when China unexpectedly devalued its currency in mid-August, and the Chinese stock market lost over a third of its value in just a couple months, the U.S. market also finally threw in the towel.

More Bad News
The volatility continued in the quarter as the U.S. dollar strengthened, the oil market plunged, and the Fed threatened to raise short-term interest rates.

Money fled international markets, pushing up the value of the U.S. dollar. That makes it more expensive for U.S. manufacturers to sell their goods overseas, and can weigh on domestic economic growth.

Oil continued its slide, and was down over 50% from a year ago. The U.S. is awash in oil currently, thanks to incremental production from shale producers in recent years. In the face of this, OPEC nations have continued to pump oil, hoping to drive down prices, and push U.S. producers out of business. This battle of the competitive wills is good for us at the gas pump, but because oil company earnings are such a big part of the stock market, declining oil prices are not always a good thing for stock market returns.

Right up until the end of the third quarter, the Fed continued to suggest it would raise short-term interest rates. Such a move has the potential to slow economic growth, as the cost of financing corporate growth rises. However, in the end the Fed remained on the sidelines. Interestingly, the market took this as an even bigger negative, believing that the Fed had so little faith in the strength of the U.S. economy, that it couldn’t boost interest rates. This added even more, uncertainty to an already shaky stock market. The S&P

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