- US stocks hit all-time highs and had strong returns for the third quarter
- The Federal Reserve raised interest rates in September
- The market seems to be immune to the political squabbling in Washington
US stocks wrapped up September and the third quarter on a positive note. The S&P500 gained 0.57% for the month and 7.71% for the quarter. The major stock indexes in the US continue to gain all-time highs as trade deals with Mexico and Canada were signed at the end of the month. Growth stocks continued their dominance gaining 9.17% for the quarter and 17.09% for the year. Value stocks edged ahead gaining 5.7% for the quarter but just 3.92% for the year. High earnings growth expectations for next year along with increases in inflation and interest rates could be a headwind for growth stocks moving into 2019.
September was one of the widest dispersion in sector returns so far this year. Telecom services (+4.26%), healthcare (+2.93%) and energy (+2.59%) were the winners, while real estate (-2.65%), financials (-2.22%) and materials (-2.09%) were out of favor with investors. Small cap stocks also had a difficult month with the Russell 2000 losing 2.41%. Higher interest rates and a profit taking from a strong summer were likely the culprits.
International markets were mixed during the month with developed markets gaining 0.87% while emerging markets lost 0.53%. Both are negative for the year and could draw attention to the low valuations relative to the US markets in the coming quarters. The trade spat with China doesn’t seem to be deteriorating so having caution in emerging markets seems to be the standard.
The Federal Reserve raised their benchmark rate 0.25% in a widely anticipated move. For those of us watching the bond market at the time of their announcement, there was little change in market rates. Their target range for the Fed Funds rate is now up to 2% – 2.25%, which may be high enough to keep inflation in check so further rate hikes may be less certain. Overall, interest rates rose during the month and caused a -0.64% return for the Bloomberg Barclays Aggregate Bond Market Index. High yield bonds (+0.56%) and Treasury Bills (+.16%) were the only positive areas of fixed income.
Bill Roth, CFA
Sources: JPMorgan, Morningstar, Bloomberg