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Morningstar Market Commentary: Third Quarter 2006

Large-company stocks lead market's charge during third quarter.

Sanjay Arya, 10/17/2006

Falling energy costs, diminishing concerns about interest rates and inflation, and optimism over corporate earnings helped rally the markets in the third quarter. The Morningstar US Market Index--which tracks the performance of the broad U.S. equity market--posted gains of 4.6% for the quarter. The resurgence of large-company stocks was the big story, as they have lagged mid- and small-caps during much of market rally since 2002.

In our quarterly review, Morningstar fund analyst John Coumarianos provides insight into the market's performance.

A recap of some of the key trends:

  • Large caps surge ahead. Large, high-quality companies, which tend to perform well during times of economic uncertainty, strongly rallied.
  • Value stocks continue to assert their dominance. Although growth stocks are beginning to catch up, value stocks continued to win the battle of the styles.
  • Passive benchmarks proved tough to beat. As a group, actively managed funds lagged their respective style indexes in all but one of the Morningstar Style Boxes.

Sanjay Arya is director of Morningstar Indexes.


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