September Market Overview
The majority of global stock indices rebounded from the August selloff and finished September with respectable monthly gains, including the S&P 500, which climbed 1.9%. The rebound in the stock market was largely attributable to recessionary fears fading over the course of the month; as these concerns dissipated, so too did the flight toward safe havens, resulting in slight declines of most fixed income indices.
That said, the markets have kicked off the fourth quarter with some concerning economic data that has spurred a selloff in the equity markets – and drove investors to seek refuge in Treasuries and Gold. In particular, the U.S. ISM manufacturing index data, released October 1 for the month of September, fell to the lowest levels in 10 years. The reading was 47.8, down from the August reading of 49.1 (anything below 50 is contractionary). The ISM has been declining steadily throughout the year.
Subsequently, private payroll data for September fell short of market estimates, and the August estimate was revised lower. These data exacerbated market concerns that the slowdown in U.S. manufacturing is beginning to permeate the broader U.S. economy.
As we have discussed throughout the year, the failure of the U.S. and China to settle the trade war is concerning, and there is growing evidence that the related uncertainty is reducing capital spending among corporations and pressuring manufacturing. Fortunately, heretofore U.S. consumer spending has remained strong, supporting the continued economic expansion. Still, consumer confidence retreated in September to 125.1 from 134.2 in August, though we note that this is still a pretty good reading and that these numbers tend to bounce around quite a bit.
In large part because of the slowdown in corporate capital spending, the Federal Reserve reduced rates again at its September meeting, a move that was widely expected by the markets. The Fed has also noted concerns regarding the prolonged uncertainty on trade policy.
Across the pond, the Brexit ordeal remains ongoing. The new prime minister, Boris Johnson, is playing hardball with the EU on negotiations and has relentlessly threatened that absent a compromise, he will lead the UK through a no-deal “hard” Brexit on October 31. Continued uncertainty on this issue is likely to result in additional volatility in the markets. Stay tuned.
Finally, as has been well covered by the media, the impeachment process is now underway against President Trump. For the time being, we see this as having limited implications for the markets, as it will take time for the process to unfold. Over time, an impeachment may result in additional uncertainty surrounding ongoing trade discussions to the extent that Vice President Pence may handle negotiations differently, as well as heightened uncertainty surrounding the 2020 presidential elections.
The monthly Market Overview is written by two members of MACRO’s Investment Committee: Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.
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