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Our Take on the Third Quarter

All eyes were on the Fed during the quarter as stocks continued to rally.

Jeremy Glaser 15.10.2013

Despite continued uncertainty about the health of the global economy and the future of monetary policy, U.S. stocks retook all-time highs in the third quarter before pulling back slightly in September. The broad-based Morningstar US Market Index rose by nearly 7.5% during the last 13 weeks. The market is now 22% higher year to date and up 10% annualized during the past five years. 

The market's focus was squarely on the Federal Reserve again this quarter. At its September meeting, the Fed chose to keep in place its current program of purchasing mortgage-backed securities. This was seen as a major surprise given that the central bank had spent the last several months hinting that a taper was imminent. Fed chairman Ben Bernanke cited mixed economic data and the uncertain path of fiscal policy as the primary reasons for not yet taking the foot off the accelerator. The Fed is still broadly expected to begin tapering in the coming months, but the lack of a clear timetable has likely been causing some stock and bond market volatility.  

The focus on the Fed contributed to some fairly large moves in the Treasury market. The yield on the 10-year bond started the quarter off at 2.5%, rose to nearly 3.0% as the market anticipated the tapering announcement, and then fell back down to 2.6% after the central bank's surprise move.

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About Author

Jeremy Glaser  Jeremy Glaser is the Markets Editor for Morningstar.com.

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