September market review

October 11, 2013

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


  • Financial markets gained in September as the US Federal Reserve elected not to taper its bond purchases.
  • For the US equity indices, the S&P 500 was up 3.14% for September, 5.24% for 3Q and 19.79% YTD. The Russell 2000 outperformed the S&P for all periods, up 6.38% in September, 10.21% for 3Q and up 27.69% YTD.
  • The Developed International equity index, MSCI EAFE, outperformed the S&P again in September, up 7.39%, and 3Q up 11.56%, but has underperformed the S&P 500 by 3.65% for the year. German election results contributed favorably to investor risk tolerance, with European equities led by gains in Germany, Spain, France, Russia & Italy.
  • Emerging markets (EM) were up 6.50% for September with leadership from China, Brazil, Hong Kong, Korea & Thailand. EM was up 5.77% for 3Q but still down -4.35% YTD.
  • The Japanese Nikkei 225 was also up 7.96% for the month, 5.69% for 3Q and up 39.06% YTD. This performance, as previously mentioned, has been driven by the Bank of Japan devaluing the Yen, which was down -0.16% for the month, up 0.85% for 3Q and down -12.74% Y-T-D.
  • US yields fell as the yield curve steepened on continuation of Fed bond purchases. US corporate issuance reached record levels in September as issuers positioned for higher future borrowing costs. The 10-year was down 18bps to finish September at 2.61% and the 30-year was down 1bp to 3.69%. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • The US dollar posted sharp declines against most currencies in September.
  • Corporate bonds prices were up in the month of September. The Barclays Aggregate Index was up 0.95% for September and down -1.89% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was up 0.29% for September, and is up 4.18% YTD.
  • Volatility in domestic equity markets was low for most of September but picked up late in the month as investors eyed the shutdown. Concerns about potential military action in Syria dissipated and were replaced by an almost myopic focus on Washington.

Economic & Geopolitical Headlines

  • The story in late September and the beginning of October is the shutdown in Washington and the potential debt ceiling/default issues in mid-October.
  • If the shutdown persists, there will be some economic impact. In the past, the economy has snapped back from built-up demand during shutdowns, however.
  • The larger risk is the standoff over the debt ceiling and the potential for the US to commit a technical default. It is impossible to predict how markets and the economy would react to such a scenario but it is an event that should be avoided at all costs.
  • The second half of 2013 saw a pick-up in ISM PMI, a proxy for manufacturing, and therefore economic health. In the US, September’s number was 56.2, up from 55.7 in August. A reading above 50 is considered economic expansion.
  • Unemployment data for September was unavailable due to the shutdown in Washington.
  • Fed Chairman Bernanke surprised the market by not tapering bond purchases (Quantitative Easing, also known as QE). The Chairman made it clear that a potential impasse in Washington as well as the severe reaction by the housing markets and mortgage rates were the primary drivers of the decision. The lack of clarity from the Fed was derided by many market participants who, not surprisingly, tried to predict the Fed’s move and were caught wrong-footed.
  • Janet Yellen, the Vice Chair of the Fed, has emerged as the clear front runner to replace Chairman Bernanke. Much will be written about and discussed regarding Ms. Yellen in the coming weeks once the shutdown has been resolved. The market, and Senate, will want to know whether Ms. Yellen will continue the current easing policies of the Fed.
  • Emerging markets, as evidenced by their strong recent performance, seem to have found a bottom in regards to expectations of growth versus actual growth. There are still major concerns about the health of certain large EM countries like India, Brazil and Indonesia  but in general they look poised to end their run of disappointment relative to expectations.


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