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Capital Markets Recap - September 2018

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Summary

  • U.S. equities finished the month almost flat but still outpaced the rest of the world for the year. Strong economy (GDP 4.2%), low unemployment (3.9%) and tame inflation (2.7%) supported a strong level of consumer confidence that is hovering close to an 18-year high.  Compared to the rest of the developed world, US manufacturing experienced one of the highest growth rates in September.  “Small Business Optimism Index” reached its highest level in 45 years as measured by National Federation of Independent Businesses.  So far, the US stock market shrugged off tough rhetoric about trade wars and tariffs.
  • International and emerging market equities produced muted returns for the month. Eurozone and Japanese manufacturing slowed down as global trade concerns eroded business confidence.  Over the last year, there has been a divergence in performance of the US and the other countries due to strengthening US dollar.  Countries like Argentina, Turkey and Pakistan came under extreme distress as their currencies declined against the dollar.  Increasing oil prices also impacted economies of oil-importing countries (e.g. India, S. Africa, the Philippines).  US tariffs negatively affected China causing its stock market to decline and its manufacturing to remain stagnant.
  • Fixed income investments, except high-yield bonds, ended the month slightly negative. The Fed raised the interest rates and signaled another rate increase in December.  The 10-year Treasury yield increased to 3.05% from 2.9% as investor optimism continued.

U.S. Equities

  • Broad U.S. stocks were slightly positive (0.2%) for the month but returns were robust on a year-to-date basis (10.6%).
  • Size – Small-cap stocks (-2.4%) underperformed both large-cap (0.2%) and mid-cap (-0.6%) equities during the month, but small-caps continued to lead on a year-to-date basis (11.5% vs. 10.6% for large caps).
  • Style – Growth stocks (0.3%) outpaced value stocks (0.0%) in September and continued to significantly outperform on a year-to-date basis (17.0% versus 4.2%, respectively).

S&P 500 Sector Returns for September 2018

Looking Ahead 

  • There are many reason for continued optimism and a bullish picture for the US economy as well as the stock market. There is also concern over conditions such as US politics, monetary policy, geopolitics and trade disputes.  Even though the US stock market hit record highs, some defensive sectors outperformed the cyclical sectors in September, displaying a level of uncertainty inherent in business and market cycles. 
  • Now, more than ever it is time to be “proactive”. As performance of different regions, countries and asset classes decouple, it is imperative to maintain a portfolio of investments that is diversified and re-balanced to weather different market conditions.
Sources: Morningstar, Inc., Barclays Capital, Russell and MSCI, U.S. Bureau of Labor Statistics, The Conference Board, IHS Markit, The Federal Reserve (central bank of United States), The Bureau of Economic Analysis (U.S. Department of Commerce) & U.S. Department of Treasury

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