What trade war?
While the news flow during the third quarter of 2018 was wildly volatile, with a narrative on trade policy that seemed to shift by the day, you’d never know it to look at the U.S. stock market, which rose broadly and resumed 2017’s trend of steady gains with limited volatility.
In contrast to the second quarter, when basically every asset class underwent steep gains throughout the period, the mood seemed far calmer in the third quarter, which represented one of the strongest quarters for major U.S. indexes in years. While other asset classes and regions didn’t fare as well, the general tone on Wall Street was a positive one, as highlighted by all three major indexes hitting record levels, including the Dow Jones Industrial Average, which ended a lengthy drought of rangebound trading.
In a measure of how anxiety seemed to fade in the third quarter, the Cboe Volatility Index dropped more than 19% over the period, its biggest quarterly decline since the first quarter of 2016. Daily moves were also muted; the S&P 500 didn’t have a single session in the quarter where it closed with a 1% move, whether up or down.
The tone wasn’t as positive overseas, where the prospect of a trade war between the U.S. and other major economies was seen as a bigger threat. In addition, shares in Europe struggled amid heightened political uncertainty, including over the UK’s negotiations to exit from out of the European Union, known as Brexit, and Italy’s budget.
The following table shows the price moves for major stock indexes and regions over the quarter, and over 2018. For emerging markets, a popular exchange-traded fund is used.
The S&P’s gain in the quarter was its biggest such advance since the fourth quarter of 2013. Both the S&P