By Jason Teed Equities were up significantly in the third quarter despite a sell-off in September. The NASDAQ Composite led the pack, gaining more than 11% for the quarter. Cyclicals were the best performers. Emerging markets gained 10% for the quarter, and the S&P 500 was up over 8%. International developed stocks were the worst performers, but they still gained more than 4.5%. This distribution of returns indicates a relatively robust appetite for investment risk, as the world economy continues to recover from a pandemic-related downturn earlier this year. Offensive sectors outperformed for the most part, though Financials lagged with a return of 4.6% for the quarter. Consumer Discretionary gained the most, up by more than 15%, while Energy was the worst performer, falling by more than 19%. Usually a reliable defensive sector, Utilities lagged with a gain of 6%. Surprisingly, Health Care also lagged this quarter (as it did last quarter) with a return of 5.8%. Markets painted a somewhat rosy picture this quarter. Before the September sell-off, the S&P had at one point risen by more than 15%. The Growth style outperformed Value, emerging markets outperformed international developed markets, and offensive sectors outperformed defensive sectors. All of these signs point to an expectation of continued economic recovery. September’s sell-off was largely anticipated as the month tends to be the worst of the year for the markets. Typically, the markets take a pause in September before ending the year higher. Safe-haven assets were mixed for the quarter. Gold rose about 5.8%, significantly less than the previous quarter’s gain, while long-term Treasurys were virtually unchanged. The precious metal’s recent market action indicates that it is performing more as an inflation hedge than a safe-haven asset, as equities are up, market volatility is down, and other safe-haven assets are underperforming. The yield curve, which was heavily inverted at the beginning of the second quarter, has continued to normalize and now shows no suggestion of inversion. This indicates that continued economic growth is expected. The curve has also moved upward in general. The only nod to a recent recession in the curve is that rates are exceptionally low overall. The recent strong performance from equities led to quarterly gains in about 90% of our strategies. Our top performers were mostly aggressive trend-following equity strategies and aggressive strategies with access to the equity markets. About 87% of OnTarget Monitors for the quarter were “in the yellow” or better, with 79% “OnTarget” (“in the green”) or better (“in the blue”).