September Market Recap
October 1, 2021
Anybody out there remember what a down-month feels like?
September snapped a 7-month winning streak for US equities as the S&P 500 finished lower than it began for the first time since January. The Dow, S&P, and NASDAQ all lost at least 4% in a broad-based selloff from recent highs.
Something to keep in mind as investors prepare to view September 30 statements: It’s the first time all year the S&P 500 has fallen as much as 5% from its highwater mark. Since 1980, the average peak-to-trough correction during each calendar year is 14.2%. Compared to the rest of 2021, September was disappointing. Compared to an average year, it barely qualifies as a selloff at all.
Only one of the 11 equity sectors in the S&P 500 moved higher last month. Energy (+9.3%) gets the blue ribbon for September performance. Financials (-2.0%) also held up better than most. Five sectors lost 6% or more, with Materials (-7.4%) and Real Estate (-6.6%) being the worst of those.
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Some of the blame for September stock losses can be attributed to the fact we were just overdue for a pullback. Even then, there’s always news that spurs the selling. One event was the financial failing of Chinese real estate developer Evergrande, one of the 500 largest companies in the world (based on revenue) whose rapid growth in recent years was fueled by massive leverage.
The company reportedly has $300 billion of debt and is unable to make good on its loan payments. We’re still waiting to find out whether the Chinese government may bail out Evergrande in some capacity, but considering real estate and related industries make up as much as 30% of Chinese GDP, you can see why global markets are paying attention.
The US government’s debt ceiling is back in the headlines, something that happens every few years and inevitably contributes to short-term market volatility. The game of political football resumed in September, which led to threats of government shutdowns and “economic catastrophe” if Congress does not vote to legally increase the amount of debt our country is allowed.
Congress has increased America’s debt limit 14 times since 2001, never failing to do so despite a wide variety of political environments and party majorities. It will do so again. The only real questions are when, by how much, and whether it is done with bipartisan support.
Stubbornly high inflation is no longer a trend that should catch anyone by surprise, but those investors looking for an excuse to sell can still point toward rising costs for both businesses and consumers.
Crude oil prices rose nearly 10% in September and are higher than at any point in the last five years. Steel prices have more than tripled in the last 12 months. Lumber costs, which have fallen considerably since May, increased 20% in September.
The latest Consumer Price Index (CPI) inflation gauge rose 5.3% from a year earlier. That’s down from the 5.4% year-over-year increase reported in August. So while the pace of inflation is slowing, costs are still increasing. A steadily falling unemployment rate (5.2% nationally) and a glut of “Help Wanted” signs suggest the economy is strong, but rising wages will promote inflation as well.
There was speculation the September Federal Reserve meeting could result in the first tapering of stimulus since COVID hit. That proved premature as Fed Chairman Jerome Powell announced no policy changes. Powell’s previous comments made clear the Fed intends to cut back its asset purchasing prior to year-end. The “not yet” speech was well-received by stocks as the Dow gained more than 338 points on September 22.
Another Fed development worth tracking is how long Powell himself will remain in charge. His term expires early next year and it’s not yet clear whether Joe Biden will reappoint or replace him. Powell’s term has generally been viewed favorably, but a bloated Fed balance sheet, higher inflation, and the recent resignation of two Fed officials (for perceived conflicts of interest) mean it’s no sure thing Powell will keep his job.
The 10-year Treasury yield began September at 1.3% but rose all the way to 1.53% by month’s end. That increase hurt the returns for bond investors, who had benefitted from steadily falling yields since March.
Small-cap stocks fell at a similar rate to their large-cap cousins with the Russell 2000 losing 3% last month. Non-US Developed equities were down 3.3% in September. Emerging Markets fell 3.9%.
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Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
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