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  Third Quarter 2017 Market Commentary

The U.S. Equity Market

The U.S. stock market, represented by the Wilshire 5000 Total Market IndexSM, was up 4.59% for the third quarter of 2017. The market has been posting strong gains since the third quarter of 2015, up 17.10% annualized for the past two years. Equity investors are in part responding to strong earnings reports, with reported earnings up in the double digits for each quarter of the first half of 2017. Economic releases during the past three months have been solid, with growth in both the economy and labor market. Although the Federal Open Market Committee maintained the current Federal Funds rate at their September meeting, they did confirm that they would begin to shrink their $4.5T balance sheet starting in October 2017.

U.S. Equity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire 5000 Total Market IndexSM 2.41 4.59 13.72 18.89
Standard & Poor’s 500 Index 2.06 4.48 14.24 18.61
Standard & Poor’s TSX Index (CAD) 3.31 7.67 12.00 14.74
Wilshire 4500 Completion IndexSM 4.34 4.96 12.46 19.73

U.S. Equity by Size/Style

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. Large Cap IndexSM 2.06 4.50 14.19 18.92
Wilshire U.S. Large Cap Growth IndexSM 1.24 5.01 18.99 23.64
Wilshire U.S. Large Cap Value IndexSM 2.89 3.99 9.63 14.44
Wilshire U.S. Small Cap IndexSM 5.73 5.39 9.55 18.65
Wilshire U.S. Small Cap Growth IndexSM 6.04 6.68 14.79 23.53
Wilshire U.S. Small Cap Value IndexSM 5.44 4.05 4.32 13.74
Wilshire U.S. Micro Cap IndexSM 8.74 7.12 13.01 23.15

Large capitalization stocks underperformed small caps, with the Wilshire Large Cap IndexSM up 4.50% versus a gain of 5.39% for the Wilshire Small Cap IndexSM. Returns for the past year are nearly identical for the two market segments. The Wilshire Micro Cap IndexSM was up 7.12% for the quarter and 23.15% for the one year. Growth stocks led value stocks during the third quarter in both the large and small cap spaces.

Sector performance was varied during the quarter. The best performing sectors were Information Technology (+8.4%), Energy (+6.7%) and Telecom Services (+6.5%). While some sectors produced more modest gains, only one sector was in negative territory, Consumer Staples (-1.2%)

Federal Reserve: Balance Sheet Forecast ( in Trillions)

Wilshire 5000 Index: Rolling 5 Year Risk

Source: Federal Reserve

On September 20th, the Federal Reserve announced they would begin their balance sheet normalization program. While this would normally be a major announcement, given the steady and telegraphed actions that the Fed has undertaken since the global financial crisis, the market reaction was muted. The program is expected to reduce their holdings by $10 billion per month initially, increasing quarterly until reaching $50 billion per month in both Treasury and mortgage-backed securities. This slow but steady pace would mirror the Fed’s approach to post-2008 conditions while maintaining a total balance sheet well above the pre-crisis trend for the foreseeable future.

The Non-U.S. Equity Market

Developed international and emerging equity markets produced strong returns during the third quarter of 2017. The U.S. dollar has been generally weakening during 2017, providing an additional boost for U.S. investors holding foreign currencies. Gains were broad based across Europe, with all of the major foreign markets in positive territory for the quarter. Economic news out of Japan was encouraging as surveys indicated that manufacturers were increasing output and factories were exhibiting less available capacity. Emerging markets continue to lead all global equities, eyeing their best annual return since the financial crisis recovery. Despite rising political tensions in North Korea, emerging market equities are positive for 2017 thus far largely due to an improving economic outlook across most emerging countries.

Non-U.S. Equity

  USD (%) Local Currency (%)
MSCI AC World ex U.S. 1.86 6.16 21.13 19.61 2.20 4.41 13.46 19.05
MSCI EAFE 2.49 5.40 19.96 19.10 2.71 3.36 11.16 19.02
MSCI Europe 3.30 6.45 22.79 22.30 2.71 3.45 11.64 17.71
MSCI Pacific 0.99 3.87 15.41 14.22 2.70 3.48 10.74 21.99
MSCI Japan 1.96 3.97 14.28 14.09 4.28 4.16 10.30 26.83
MSCI EM (Emerging Markets) -0.40 7.89 27.78 22.46 0.44 7.58 23.54 21.76
MSCI ACWI ex U.S. Small Cap 2.15 6.90 23.54 19.19 2.59 5.20 15.74 19.45

The Fixed Income Market

The U.S. Treasury yield curve continued to flatten during the quarter, with short to intermediate term rates rising more than long-term yields. The bellwether 10-year Treasury yield ended the quarter at 2.33%, up slightly but much higher than a year ago (1.60%). The Federal Open Market Committee decided to maintain their overnight rate while confirming the beginning of their balance sheet reduction program. Credit spreads continued to trend lower during the quarter in both investment grade and high yield bonds. High yield spreads, which have averaged 6% during the past decade, were below 4% during the quarter and stood at 3.5% as of September 30.

U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Bloomberg Barclays U.S. Aggregate -0.48 0.85 3.14 0.07
Bloomberg Barclays Long Gov’t/Credit -0.96 1.53 7.65 -0.79
Bloomberg Barclays Long Term Treasury -2.16 0.58 6.02 -6.35
Bloomberg Barclays U.S. TIPS -0.64 0.86 1.72 -0.73
Bloomberg Barclays U.S. Credit -0.22 1.35 5.08 1.96
Bloomberg Barclays U.S. Corporate High Yield 0.90 1.98 7.00 8.88

Non-U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Bloomberg Barclays Global Aggregate -0.90 1.76 6.25 -1.26
Bloomberg Barclays Global Aggregate (Hedged) -0.46 0.78 2.22 -0.17
Bloomberg Barclays EM Local Currency Government Universal -0.69 2.01 8.57 2.00
Bloomberg Barclays EM Local Currency Gov’t Universal (Hedged) 0.18 0.41 1.11 -1.25
Citigroup World Government Bond Index ex-U.S. -1.38 2.57 8.63 -3.14
Citigroup World Government Bond Index ex-U.S. (Hedged) -0.52 0.70 0.94 -1.29

Real Estate/Commodity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. RESISM -0.08 0.63 3.06 0.80
Wilshire Global ex U.S. RESISM -0.30 2.72 13.80 5.72
Wilshire Global RESISM -0.16 1.35 6.59 2.46
Dow Jones UBS Commodity Index -0.15 2.52 -2.87 -0.29
S&P GSCI Commodity 3.32 7.22 -3.86 1.79
Alerian MLP Index 0.69 -3.05 -5.62 -3.70

The Real Estate and Commodity Markets

Real estate securities were up in the U.S. during the third quarter, with an even stronger return globally due in part to a weakening dollar. Commodities were up for the quarter as crude oil rose 12.2% to $51.67 per barrel. Natural gas prices were down -0.9%, ending the quarter at $3.01 per million BTUs. MLP returns were negative for the quarter and for the past 12 months. Gold prices were up and finished at approximately $1,285 per troy ounce, up 3.4% from last quarter.


Wilshire Funds Management (“WFM”) and Wilshire Consulting are business units of Wilshire Associates Incorporated (“Wilshire®”). WFM delivers Wilshire Advisor Solutions, which include models designed to provide a broad range of outcome-oriented investment solutions for advisors to use with their clients. Wilshire is a registered service mark of Wilshire Associates Incorporated, Santa Monica, California. All other trade names, trademarks, and/or service marks are the property of their respective holders.

This material contains confidential and proprietary information of Wilshire. It may not be disclosed, reproduced, or redistributed in whole or in part, to any other person or entity without prior written permission from Wilshire Funds Management.

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Past performance does not guarantee future returns. This material may include estimates, projections and other “forward-looking statements.” Due to numerous factors, actual events may differ substantially from those presented.

This material represents the current opinion of Wilshire based on sources believed to be reliable. Wilshire assumes no duty to update any such opinions. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Information and opinions are as of the date indicated, and are subject to change without notice.

©2017 Wilshire Associates Incorporated. All rights reserved.

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