Kevin Barr, head of SEI's Investment Management Unit, provides an overview of the global financial markets and our perspective on them.
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Hi, I'm Kevin Barr, head of SEI's Investment Management Unit. Over the next few minutes, I'll provide an overview of the global financial markets and our perspective on them.
Major equity market indices battled their way toward all-time highs through July and August, before taking a choppy path lower in September. U.S. equities were able to remain just above break even for the quarter. Globally, however, shares were modestly lower for the full period driven by a growing list of challenges. A run-up in the interest rates around the world accelerated in September, replicating the dynamic that chilled markets back in February.
China's regulatory steps to reign in e-commerce companies and for-profit schools, coupled with the debt problems and its real estate sector rattled markets late in the quarter.
We can see that September's performance pushed much of the developed world into negative territory for the third quarter. Emerging Market Performance was concentrated at the bottom end of the range by China and Brazil. The latter struggled with high inflation forcing its central bank into a cycle of rate hikes, lowering prospects for future growth. From a sector perspective, energy and financials were the sole notable gainers for the full third quarter. Energies runaway performance in September contributed to the negativity that pervaded the rest of the market, as rising energy costs put direct pressure on the bottom line for most firms.
The value growth tug of war continued throughout the period. The third quarter began amid of reversal of the rotation to value leadership that started last November. Growth had regained the initiative as the delta wave challenged developed market reopening plans, pushing investors back into big work from home technology stocks and other expensive growth companies.
Despite the setback, the value growth performance story was mixed across global markets. Growth really started to press the advantage in mid-quarter, but it was short-lived. Value decidedly outpaced growth in U.S. small caps in emerging markets, while gross lead in U.S. large and international developed shares, narrowed in the end of the quarter.
Fixed income performance helps tie together several of the quarters major themes, including challenges in China and other emerging markets, rising interest rates, and persistent inflation. Inflation protected securities carried the quarter, despite a poor showing in September as the accelerating pace of interest rate increases dampened inflation expectations at the margin. We can also see the impact rising interest rates had on investment grade corporate bonds and treasuries, both of which were flat for the quarter after a tough September.
Looking ahead, we believe the recent gloom about flagging economic growth is a bit overdone and that perceptions will shift for the better as the delta wave passes. We expect global economic growth to continue at a meaningful rate over the next year or two, and believe that value stocks have additional room for gains. Around the world, the earnings of publicly traded companies also remain robust, and we believe analysts are still underestimating their strength. This low bar could allow for upward revisions and earnings estimates, assuming, as we do, that the normalization of global economic growth gets back on track.
On behalf of everyone at SEI, thank you, as always, for your trust and confidence.
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