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September was a change of pace for the markets and economy. Volatility seems to be coming back into style and economies worldwide were busy with news and central bank policy. Here’s our summary for the month.
Last Month Performance
The S&P 500 and the US Aggregate Bond index remained flat for the month however proved a more volatile path to get there. And while the lack of performance mirrored August, the contributions to that performance from a sector basis changed. Financials went from first to worst on the disappointment of no rate hike and the heavy focus of European banks and one particular bank in the US. We still have strong conviction on this asset class as everyone looks to December’s most probably rate hike. Energy went from 2nd place in August to 1st place as OPEC voiced a commitment to curb oil production ahead of its November meeting. WTI Crude Oil rocked a more than 8% positive bounce in response. Technology rounded out the top two performers at 2.4%(1).
It would seem that diversification has been helping portfolios over the last few months, as international stocks returned much better performances than domestic counterparts. International developed markets measured by the MSCI EAFE index, and the emerging markets, measured by the MSCI EM index, were both positive 1.3%. It seems that there is continued comfort from the Brexit event in Europe which has allowed markets to stay positive for the last two months. Central bank stimulus also was a reason markets were positive as the continued divergence of central bank policy lives on. Stability in the commodity prices as well as a stable US Dollar has allowed emerging markets to continue their healing process and produce better earnings reports. The one international market that seems upset right now is Mexico, and undoubtedly is a result (and in-fact is a current barometer) of a likelihood of a Trump victory in November.
Bond Market Landscape
The 10 Year US Treasury continued its yield strengthening from August adding another .02% to the yield curve. Long-term yields were given a lift as there was an increase in expectations on future inflation. Short-term interest rates (not the Treasury Bills) caused floating rate instruments to fair better. Bank Loans and Collateralized Loan Obligations benefited and will continue to benefit if rates like the LIBOR (London interbank offered rate) continue to go up.
As we said last month, we don’t expect the low volatility to continue throughout the rest of the year. As the debates are underway, it should make for a morbidly entertaining coming weeks as we all watch the spectacle it has become. We will continue to look at the markets and see how our economy will stack up with whatever outcome presents itself.
As always, if you have any questions at all we are here to help.
(1) LPL Monthly Update: September
The economic forecasts set forth in the article may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk, including the loss of principal. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.