Despite continued uncertainty about the health of the global economy and the future of monetary policy, U.S. stocks reached all-time highs in the third quarter before pulling back slightly in September. The market’s focus was on the Federal Reserve (“Fed”) again this quarter with the expectation that the Fed would start reducing bond purchases after its September meeting. However, to the market’s surprise, the Fed decided to maintain the current buying program. The Fed cited mixed economic data and the uncertainty around the fiscal issues – government budget and debt ceiling deadline – as the primary reasons for not tapering. The market reaction was a spike in volatility for both stocks and bonds. The yield on the U.S. Treasury 10 year bond gyrated wildly during the quarter, starting at 2.5%, almost reaching 3%, and then finishing at 2.6%.
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