September Market Commentary

US stocks once again touched new record highs during the month before ending modestly higher.  However, they posted the best quarterly performance since 2013 on strong earnings and economic news.  The US and Canada were able to reach a deal to revise the North American Free Trade Agreement relieving trade tensions with one of the US’s largest trading partners.  The US and China, however, applied new tariffs to each other and an offer to return to the negotiating table was rebuffed.  Economic news remains strong with employers adding 185,000 new hires and wage growth reaching 2.9%.  Inflation rose 0.2% in August, below expectations, consumer confidence reached the highest level in 18 years in September, and the 2nd quarter US Gross Domestic Product increased at an annual rate of 4.2%.  Oil rose more than 5% over the month, ending at $73.25 a barrel, which nears a four year high.  For the month, US stocks edged up 0.17% making the third quarter return 7.12%.  For the year to date US stocks have gained 10.57%.

Foreign stocks were the top performing asset class for the month on reduced fears over emerging markets and an improved trade outlook.  The central banks of Turkey and Russia took steps to stem investors’ concerns about their weakening currencies during the month.  The European Central Bank lowered its projections for growth, but reaffirmed its commitment to move away from easy money policies.  They expect to wind down their bond purchase program by year-end and will not look to raise interest rates until after the summer of 2019.  Economic news from Europe continues to be soft with the latest reading of the Purchasing Managers’ Index for September showing a greater than expected deceleration in the manufacturing sector. UK and European Union negotiators are at an impasse on Brexit negotiations with six months until the deadline.  Developed markets outpaced emerging markets for the month, quarter and year to date.  International stocks rose 0.53% for the month bringing the quarterly gain to 0.93%.  However, for the year to date international stocks are still down 2.75%.

Bonds fell in September on higher interest rates.  Investors moved away from safe haven investments as they became more optimistic about the current market environment.  At the Fed’s September meeting they made the widely expected move of raising the Fed Funds rate a quarter percentage point to a range of 2.0% to 2.25%.  They said they expected to raise the Fed Funds rate a quarter percent one more time this year and then a total of 1% over 2019.  The 10-year Treasury yield rose over the month to finish at 3.06%, near its high for the year.  For the month, credit bonds were the top performing sector and shorter term bonds topped longer term bonds.  For the quarter, credit bonds were again the top performing sector and performance by maturity was mixed.  The broad bond market fell 0.64% in September lowering the quarterly return to 0.02%.  For the year to date bonds have fallen 1.60%.