By Jason Teed Equities were mixed for the third quarter, giving back most of their gains in September. The S&P 500 Index was the leader for the quarter with a 0.58% gain. The Russell 2000 small-capitalization index was the domestic laggard, down 4.36%. Emerging markets were the worst performers, falling 8.09%. Growth stocks outperformed Value stocks. Developed international markets fell, as energy supply issues and inflation began to depress returns in those regions. This distribution of returns indicates that the domestic economic environment is in transition, neither clearly risk-on nor risk-off. Sectors varied for the quarter, showing no clear trend for risk appetite. Financials led performance, gaining about 2.7%. Utilities also performed well, up about 1.8%. Materials lagged due to supply-chain issues, losing 3.46%. Industrials were the worst performer for the quarter, falling 4.1%. While corporate earnings have been high lately, recent shifts in thinking about Federal Reserve policy have led to lower projections of gross domestic product, from 7% to 5.9% as of the last Fed meeting. Future growth levels may not be able to sustain the current market valuation, leading to uncertainty for investors. Caution is warranted in the near to intermediate term. Gold fell about 0.85%. However, the metal rebounded off intra-quarter lows by the end of September, while long-term Treasurys declined about 0.36%. Currently, the market is digesting opposing information about whether the Federal Reserve is likely to increase rates. High inflation suggests the Fed may need to tighten rates earlier than expected, but declining economic results and forecasts suggest a more dovish policy may be needed. Falling rates make gold more attractive than income-generating assets, and bond prices rise as interest rates fall. Overall, the shape of the yield curve has not substantially changed over the last three months, though the entire curve has shifted upward as rates have begun to rise. This suggests a healthy market pattern in the long term. Rates remain at historically low levels. However, if rates continue to rise, both equities and bonds may suffer, leaving little safety for traditional investors. The recent weak performance of assets led to quarterly gains in about 13% of our strategies. About 87% of OnTarget Monitors for the quarter were “in the yellow” or better, with 70% “OnTarget” (“in the green”) or better (“in the blue”). Our top performers were mostly tactical strategies that actively trade into and out of the market. These strategies were able to avoid some of the losses incurred in the major asset classes. The quarter was challenging for trend-following and sector-based strategies, as the equity markets lacked strong direction and experienced a few whipsaw events. Several sector rotations began to trend but then immediately reversed, causing small whipsaw losses that did not appear directly correlated to broad market movements.