September market review

October 14, 2014

Shortly after the end of each month, our Chief Investment Strategist provides highlights of the market and our funds’ performance. Following is a summarized review of September — 

Markets

  • Global financial markets ended the third quarter with declines in September.
  • The S&P 500 was down 1.40% for September, but was up 1.13% for Q3 and is up 8.34% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, was down 6.05% for the month, down 7.36% for Q3 and is down 4.41% YTD.
  • The international developed equity index (MSCI EAFE) was down 3.84% for the month, down 5.88% for Q3 and is down 1.38% YTD. The bulk of this underperformance was due to the impact of translating returns in weak underlying currencies (Euro, Yen) back into dollars for US investors. Emerging markets (MSCI EM) has given up its rally and was down 7.41% in September, down 3.50% for Q3, but is up 2.43% YTD.
  • The Japanese Nikkei 225 returned 4.86% in September, 6.67% for Q3 but is down 0.72% YTD. This YTD underperformance has been accompanied by a rise in the Yen.
  • Fixed income yields increased and the yield curve continues to flatten. In September, the 10-year Treasury yield was up 15bps to 2.49%, from 2.34% in August and the 30-year Treasury yield was up 12bps to 3.20% from 3.08% in August. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices decreased in September. The Barclays Aggregate Index was down 1.68% for September, up 0.17% for Q3 and up 4.10% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was down 0.52% for September, down 0.33% for Q3, but is up 2.41% YTD.

Economic & Geopolitical Headlines

  • According to the third estimate released by the Bureau of Economic Analysis, the US economy, measured by real gross domestic product (GDP), increased at an annual rate of 4.6% in the second quarter of 2014. In the first quarter, real GDP slowed 2.1 percent.
  • Geopolitical and non-financial risks remained in the forefront of investors’, and the general public’s, minds in September. Gruesome executions and actions by ISIS in Iraq highlight the growing unrest in the region. Additionally, persistent fears about the harmful potential of the Ebola virus in Africa have investors on edge.
  • The Fed resumed its meetings in September and kept its short-term rates near zero while continuing the taper, reducing asset purchases another $10 billion. Currently, the Quantitative Easing purchases of assets are on schedule to end in October. Chairwoman Yellen has reiterated numerous times that the Fed has no intention of raising rates in the near future, but speculation abides that more positive economic news could result in a raise in rates in 1H15.
  • Expansion in manufacturing in the US continues but has slowed somewhat; the PMI in September registered 56.6, a decrease of 2.4 points when compared to August’s reading of 59.0. A reading above 50 is considered economic expansion.
  • US job growth increased in September. The Labor Department reported total nonfarm payroll employment increased by 248,000 in September — well above expectations — as labor markets rediscovered the momentum gained earlier this year. The unemployment rate declined to 5.9 percent, its lowest level in six years. Economists had predicted 215,000 new jobs and an unemployment rate that would hold steady at 6.1%.
 
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