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September 2017 Month in Review
As we make our way into October there’s bitter sweetness in the air. While we experienced a fine taste of sweetness from gains in the stock market – in what was supposed to be the worst month of the year (historically) – we are also left with the after-taste of after-math. With the hurricanes having done their damage, what we are left with are questions about how to rebuild what has been lost by so many families. While the hurricanes would seemingly lower earnings estimates, we are much more concerned with how it will affect all the families who are picking up the pieces of the places they once called home. And if that wasn’t enough, our hearts and prayers go out to those in Las Vegas who were impacted by the massacre-shooting that took place over the last weekend of the month. It surely trumps our efforts to lift morale on corporate profits and stock markets and economies, however positive they may be. With the hurricanes and the worst massacre in US history, it causes us to pause and remember that our true wealth in life comes from our faith, family, and friends who mean so much more to us than dollar signs and economic expansions. There is no good transition from these kinds of tragedies into a Month-in-Review, but we are here to support your understanding of what is going on in the markets and economy, so without good transition, we will move on.
The markets did, in fact, beat all odds of performing poorly and posted seemingly record gains in September. The S&P 500 and Russell 3000 posted a +2.06% and +2.44% respectively; and the MSCI World (ex USA) index posted a +2.59% return. Bonds took a backseat in returns, delivering a -0.86% return (based on the Barclays Aggregated US Bond Index). So it was a risk-on month, where sitting on the sidelines continued to create missed returns1. This market is proving to be one that defies all odds. September created new highs and had one of the lowest volatile Septembers dating back to 1970 – when they started tracking it. The S&P 500 is now up 11 consecutive months (including dividends). This has only happened two other times since 1950 (1954 and 1959)2.
One of our main focuses this month will be on third quarter earnings with the first 27 companies from the S&P 500 reporting this week1. With the dollar relatively stable, this should help US companies with their earnings and forward guidance; given that 40% of S&P 500 companies receive revenue outside the borders3. Energy will continue to enhance overall earnings as it demonstrates a still-rebounding earnings growth from the last few years. The sector weakness experienced this year is not necessarily indicative of weakness in operations.
From an economic standpoint, we will be focused on nonfarm payroll numbers due out Friday, October 6th; but we are already seeing good economic signs of growth, as Monday morning (October 2nd) the ISM Index jumped to 60.8, which is the highest level it’s been at since May of 20041. This should continue to raise the probability that the Federal Reserve will raise rates in December. As of the end of September, the market has shifted heavily and is now showing a 76.7% probability of a rate increase in December4.
Probably the most anticipated, and yet most disappointing-to-date, economic news we are awaiting is tax reform. While there are signs that pen has actually hit the paper, we are a long ways away from agreement on Capitol Hill. We will continue to lean in to the conversations happening and if tax reform (or at least a tax cut) is deployed, we will adjust accordingly our planning and investment management to our clients.
Finally, if you did not receive our email/letter about the Equifax breach that resulted in over 143 million Americans having their identity potentially stolen, please reach out to us and we would be happy to send/resend it to you. We have outlined steps that you can take to not only monitor, but protect your identity.
September is a good reminder that the markets do not always do what we think they will do, or respond to events the way we think they will respond to events. If you were to ask anyone if they thought that following the 2016 elections we would experience one of the lowest volatile markets ever recorded, I am not sure you would have been justified an answer. However you could have said the same thing after the assassination of our president, John F. Kennedy back in November of 1963; and yet that was the last time we saw such a streak2. While the markets are unpredictable, we can manage through them, and until otherwise told, that’s exactly what we’ll do.
Thank you again for your trust and confidence. Please stay safe this October.
LPL Financial Advisor
Vice President, AGH Wealth Management
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.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.