The most important thing that happened to the stock market this quarter is what happened to the bond market. The benign bond bear market that began in the summer of 2016 became less benign as yields on 10-year treasuries began a steep ascent in September from just under 2.9% to a current level of 3.2%. "Safe" treasury bonds don't look quite so safe now, and a Federal Reserve still early in a tightening cycle - Fed Chairman Powell said we are "a long way" from a neutral federal funds rate - an economy growing at 4%, wage inflation beginning to pick up, and the unemployment rate at 50 year lows all contributed to raising the level of angst in bonds as yields reached their highest in 7 years.
This did not initially spook stocks, which had a strong 7.7% gain in the quarter, but in the first week of October, U.S. equities came under pressure and small-cap stocks fell three weeks in a row for the first time since November of 2017. Most other markets globally have significantly trailed the U.S. this year, with emerging market indices particularly hard hit.
