The third quarter started with rapid gains in the prices of stocks as concerns over Brexit faded. Following the 3.7% gain during the month of July, stock prices settled into a lull, moving no more than 1% for over 40 trading days. Perhaps this represented the calm before the storm as the fourth quarter is setting up as a quite eventful and uncertain period with U.S. elections, interest rates, oil prices and corporate earnings all drawing investor attention. In addition, while 2016 may prove to be different, October has proven to be a difficult one for stock market investors historically. Some of the more noteworthy stock market declines (Exs. October 1907, October 1929, October 1987 and October 2008) have occurred during the month of October, leading some to use the term “The October Effect” to describe this monthly condition. While each of these factors has the potential to move the market and create opportunities, they can also serve as distractions to investors who may feel inclined to make short term decisions that impact their longer term objectives and may not be consistent with their tolerances for risk.

Despite all of the uncertainty in the minds of many investors with respect to the path of interest rate hikes in the U.S., the impact of Brexit on England, Europe and the rest of the global economy and the outcome of the upcoming presidential election in the U.S., one thing remains certain thus far in 2016 – market leadership continues to change and evolve. Investors should be mindful of these areas of changing market leadership as allocations to these areas can provide a degree of diversification to help withstand potential periods of heightened volatility as well as the breadth of asset classes and sectors to assist in delivering risk adjusted growth opportunities. Additionally, investors would be wise, in our view, to consider sectors that have historically performed well when the Federal Reserve has gradually tightened, and to add diversification by not focusing just on the U.S. Large Cap asset class alone (i.e. consider allocations to U.S. Mid-Cap and U.S. Small Cap as well) and to not assume that Growth will always outpace Value in all market environments, especially during extended periods of heightened volatility and low comparable yields.