US and International Equities
The S&P 500 Index gave back some gains in September after a strong five-month run, with most sectors finishing in the red. The utilities and materials sectors were the exceptions, both gaining for the month. The sectors with the largest pullbacks this past month were energy, communication services, information technology, and consumer discretionary. Given the challenges with the technology sector, large growth underperformed large value. In addition, mid and small cap equities also lost ground this month.
International equities were also broadly lower, with both the MSCI EAFE and MSCI EM indexes both down this past month.
Fixed Income, Currencies, and Commodities
The bellwether Bloomberg Barclays US Aggregate Index finished the month very slightly lower and most major bond sectors fell. US Treasuries along with short-intermediate municipal bonds finished this past month in the green. Emerging markets debt as measured by the JP Morgan Emerging Markets Bond Index (EMBI) was among the weakest of the major bond sectors.
Commodities were broadly lower this month. Gold, silver, natural gas, and crude oil prices declined with silver down over 10%. The exception was copper, which saw a return of more than 1% this month.
US and International Economic Data Recap
The Federal Reserve communicated following its September meeting that it’s committed to continuing to use monetary policy tools to support the economic recovery. The Federal Open Market Committee (FOMC) stated that short-term rates would remain targeted at 0% to .25%. Rates could stay anchored near zero until 2023 or beyond unless inflation rises consistently.
The US unemployment rate remains high compared to history. COVID-19 has played an adverse role on service industry employment. Even though the unemployment rate has dropped to near 8% from a peak of approximately 15%, we are quite a ways from having an economy at full employment. The final eventual approval of a COVID-19 vaccine should help the service industry, and thus our employment landscape.
US consumer spending slowed in August mainly because extended unemployment benefits ended. August core retail sales fell .1% as well compared to an expected increase of .9%. Given that progress on additional stimulus legislation has stalled, September retail sales may show a decline, as they did in August.
The election is expected to be a major theme in October as Election Day approaches. In addition, we’ll start to receive corporate third quarter earnings. Market participants will be focused on forward guidance among concerns about the direction of the economic recovery.
Progress on a second round of stimulus, which has been viewed as a low-probability event by many investors, would be quite welcomed, and given the recent employment report, could be on the table. Any changes in the spread of COVID-19 as the weather gets colder will be monitored closely, while positive progress on a vaccine may be cheered by markets.
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