September Market Commentary

Market Commentary

US stocks pulled back to end the third quarter over a bevy of concerns to post the worst monthly performance since March 2020. Worries over the Delta variant, global growth, reduced central bank support, a stalemate in Congress, and China’s real estate market all weighed on stock values. Economic news was mixed over the month pointing towards slower growth. While manufacturing increased, retail sales rose 0.7%, and durable goods orders were stronger than expected, job growth disappointed in August with only 235,000 hires, less than half of what was expected. The unemployment rate still fell to a new pandemic era low of 5.2% from 5.4%. The Fed reported a softening in economic activity in July through August, consumer sentiment ticked down, and business activity cooled. The CPI rose 0.3% in August compared to July, lower than projected and down from the pace of recent months. On an annual basis, inflation is up 5.3%. Oil surged over the month climbing 9.5% to end at $75.03 a barrel, its highest level since 2014, as supply remains limited.

Foreign stocks fell in September due to many of the same issues seen in the US. At the conclusion of its meeting, the European Central Bank said it would keep monetary policy loose for some time, but would conduct bond purchases at a “moderately lower pace” over the next three months to reflect improving prospects for the eurozone. China’s manufacturing activity contracted in September for the first time since the start of the pandemic, while some growth was still expected. In addition, several economic indicators slowed sharply in August. Retail sales grew 2.5%, significantly short of expectations, home sales fell and construction starts declined. China Evergrande Group, China’s second largest real estate developer, was on the precipice of failure due to being over levered and drove concerns of a worldwide crisis, shaking stock markets. Emerging markets trailed developed markets over the month, quarter, and year to date.

Bonds fell in September as the Fed announced it was planning to begin to reduce support for the economy. The Fed signaled after its September meeting it was likely to begin cutting back on its bond purchase program in November. They expect a gradual reduction in bond purchases that ends by mid 2022. In addition, they could raise the Fed Funds Rate as soon as next year with rate increases faster and more pronounced than they were projecting earlier this year. Fed Chair Powell said the recent increase in inflation might last longer than the Fed initially anticipated. The 10-year Treasury yield continued to climb in September to finish the month at 1.52%, up from 1.31% at the end of August and at its highest level since June. Agency bonds were the top sector for the month and quarter, while Muni and credit bonds led the way for the year to date. Shorter term bonds topped longer term bonds in September, over the third quarter, and for the year to date.