September Market Review

October 21, 2015

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

Markets

  • Volatility in global financial markets increased in September as equity markets extended losses from the prior month. The S&P 500 ended the month of September down 2.47%, down 6.44% for Q3 and is now down 5.29% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, was down 4.91% in September, down 11.92% for Q3 and is down 7.73% YTD.
  • The international developed equity index (MSCI EAFE) was down 5.08% in September, down 10.23% for Q3 and is down 5.28% YTD. The emerging markets index (MSCI EM) was down 3.01% in September, down 17.90% in Q3 and down 15.48% YTD.
  • The Japanese Index (Nikkei 225) was down 7.95% in September, down 14.07% for Q3 and is down 0.36% YTD.
  • In September, the 30-year bond yield decreased 11bps to 2.85%, the 10-year decreased 18bps to 2.04%, while the five-year decreased by 19bps to 1.36%. Bond yields move opposite prices, so treasury prices generally increased. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices increased in September, with the Barclays Aggregate Index up 0.68% for September, up 1.23% for Q3 and up 1.13% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was down 0.67% for September, down 1.22% for Q3 but still up 1.62% YTD.

Economic & Geopolitical Headlines

  • The US economy, measured by real gross domestic product (GDP), increased at an annual rate of 3.9% in the second quarter of 2015, according to “third” estimates released by the Bureau of Economic Analysis. This release shows that the US economy is growing at a pace that appears strong relative to most international economies. This increase follows a revised, higher, annual growth rate of 0.6% for the first quarter of 2015.
  • The Federal Reserve met in September, and Chairwoman Yellen commented that concerns over global economic developments and low inflation have swayed the Committee from raising rates and that a rate hike will depend on economic data. Yellen also commented that the Committee continues to anticipate that the first increase in the federal funds rate will be appropriate when it has seen some further improvement in the labor market.
  • Economic activity in the manufacturing sector saw the third consecutive month of slower growth while remaining in expansion, with a reading of 50.2 in September according to the Institute for Supply Management (ISM) versus 51.1 in August, a decrease of 0.9 percentage points. A reading above 50 is considered economic expansion.
  • US job growth continues to increase. The Labor Department reported total nonfarm payroll employment increased 142,000 in September, in line with the average increase of 38,000 jobs per month over the prior 12 months. The unemployment rate was unchanged for September at 5.1 percent. There was little change in the number of unemployed persons (7.9 million in September from 8.0 million in August). Over the year, the unemployment rate and the number of unemployed persons were down by 0.8 percentage points and 1.3 million, respectively. July job gains were revised from +245,000 to +223,000, and the change for August was revised from +173,000 to +136,000. With these revisions, employment gains in July and August combined were 59,000 less than previously reported.
 
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