Geopolitical wobbles introduced some volatility but couldn't derail the equity rally in the third quarter. The broad-based Morningstar US Market Index rose less than 1% over the last 13 weeks. The index is now up 8% so far in 2014 and has returned an annualized 16% over the last five years.
Concerns over conflicts across the globe were a major driver of U.S. stock markets during the third quarter. Tensions between the Ukraine and Russia were under particular focus as investors worried about the reverberations that an armed conflict would have on the European and global economy. The ongoing conflict in the Middle East, culminating with the U.S. and allies launching air strikes against targets in Iraq and Syria in September, was also eyed. The vote for Scottish independence, although ultimately unsuccessful, created some turbulence as the market fretted over both short-term issues and longer-term concerns about other European regions considering independence. South American economic issues also came to the forefront. Argentina entered selective default after U.S. courts ruled that the country couldn't treat creditors who had agreed to a bond swap differently from the creditors who had not.
The U.S. economy showed signs that the weak economic data seen in the first half of the year was likely an artifact of the bad weather and not a sign of a major slowdown. Still, the economy was hardly growing at a robust rate with housing, in particular, looking weak. Morningstar's Bob Johnson expects full-year GDP growth of 2.0% to 2.5% with around 200,000 jobs added per month.
