September Market Commentary

US stocks continued their climb ending the month at a new record high. Stocks were boosted by optimism over a potential tax overhaul, a debt ceiling deal, Hurricane Irma not being as bad as feared and solid global economic news. In August 156,000 new jobs were added and wages have grown 2.5% over the past year, manufacturing growth reached its highest level in six years, durable goods orders were strong, and in its final revision second quarter GDP was revised up to 3.1%, the fastest growth rate in over two years. Oil gained 12.4% over the month driven by strong demand and signals of slowing production. US stocks jumped 2.44% in September and are up 4.57% for the third quarter. US stocks have gained 13.91% for the year.

Foreign stocks gained over the month on global growth optimism and strong earnings growth. European businesses and households were more upbeat in September about their prospects then at any time in the past decade. The German unemployment rate fell to a record low. Angela Merkel won a fourth term as chancellor of Germany in a vote for EU stability, however far right candidates did make inroads. S&P dropped China’s credit rating due to high debt levels and is now in line with the other major credit rating agencies. Developed markets well outpaced emerging markets for the month, but emerging markets outpaced developed markets for the quarter and year to date. In September, international stocks rose 1.88% bringing the gain for the quarter to 6.01%. For the year international stocks have surged 21.03%.

Bonds eased in September on rising interest rates driven by less accommodative central banking policies. At the conclusion of its September meeting the Fed announced it would begin shrinking its balance sheet in October by letting bonds mature and not reinvesting the proceeds. It will let $10 billion in bonds it holds mature each month increasing the amount by $10 billion every quarter until it reaches $50 billion. It also signaled that another rate hike this year was on the table. Investors expect this to occur in December. The Bank of England announced that they are likely to increase interest rates from their current record low of 0.25% over the coming months. Inflation readings in the UK have been higher than expected. The ECB will likely announce plans to begin to reduce their bond buying program at their October meeting. The 10 year Treasury yield rose from 2.12% to start the month to 2.33% to end September, its highest level since late July. For the month, shorter term bonds topped longer terms bonds and credit bonds were the top performing sector. For the third quarter, however, longer term bonds outpaced shorter term bonds and credit bonds remained the best performing sector. The broad bond market fell in September 0.48%, dropping the quarter and year to date performance down to 0.85% and 3.14%, respectively.