We hope this message finds you well and we are excited to spend a few days in Vermont/Maine this week. Our family is extremely excited to see the leaves changing in New England this week just like investors, advisors, and the markets, are excited to change the calendar to October.
September Market Review:
For the historically weakest month of the year, September did not disappoint this year. The month carried all the concerns that have been mounting all year which we have highlighted each month. We muddled through the month with the markets and investors worrying about a looming government shutdown, concern for further increases to the Federal Funds rate and the dreaded reading on both GDP & Inflation figures. All these headwinds and headlines created heavy selling in the bond market which spiked yields which in turn pressured down the markets. The S&P 500 ended the month of September down -4.87% and the DOW shed -3.50% in the face of these worries. With the posting of the second straight dismal performance, the S&P 500 is now up Year to date +11.68% and the DOW has been diluted to only being up Year to date +1.09%.
These pressures and fears were reduced during the final days of the month and the first few days of October with some welcome information. We saw the GDP reading hold strong at +2.1%, the government shutdown was averted (though maybe only temporarily) and we saw inflation tick up only 0.3% for the August reading (posted in September). Even with the extreme sell-off in the bond market which pushed higher yields, this created a reduction in the inversion of the yield curve. As long-term rates move up, this points to the idea that rates will remain higher for longer than originally assumed and could potentially stabilize the short-term worries of the path forward. The graph attached provides good visual evidence of the change in the “spread” or delta between short term and long-term rates.
Looking forward (October):
Traditionally, we are walking into the strongest months of the year for October, November & December. Several factors will influence how the market finishes this year, including the paths of oil prices and interest rates. Corporate earnings and economic data will also be at the top of many investors’ watchlists. The third-quarter earnings season starts in mid-October, and it will provide key insights into consumer spending and the impact of higher interest rates. On the economic front, investors will be focused on the labor market, the trajectory of inflation, and third-quarter GDP growth, which will be released in late October.
