After impressively powering through a wall of worry in Q3, equity markets abruptly began Q4 by falling sharply in October. The S&P 500 Index then oscillated to a slight gain in November, while December ushered in yet another round of sharp losses. Not only did a Santa Claus Rally fail to materialize, the S&P 500 Index produced its weakest Christmas Eve ever. However, the day after Christmas was far merrier for investors, with the S&P 500 Index generating its largest one-day gain since March 2009 and the Dow Jones Industrial Average posting its first ever 1,000+ point day.
The S&P 500 Index posted a Q3 return of +7.71%, its best quarterly return since 2013. The Russell 2000 Index was up +3.58%, while lagging larger stocks for the quarter, its +11.51% return year-to-date still outperformed the S&P 500 Index. Growth outperformed value across all market cap ranges, a trend that has been in place for most of the past two years. Factor attribution in small caps showed momentum was a key driver and component of growth returns, while value factors were largely ignored until July.
Stocks moved higher in Q2, though changes in investor concerns caused the movement to come in waves. The Russell 2000 Index posted positive returns in all three months to finish with a +7.75% total return for the quarter. Corporate earnings growth was a key driver as the positive impact of the corporate tax rate reduction began to take hold and economic growth accelerated.