Part of the Runway – Foy Financial Services, Inc.

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

Led by their giant cap components, domestic equities raised the bar even higher in September. The rally was commanded once again by the technology sectors, with the S&P Semiconductor Index up +11.31%, the S&P Telecommunication Services Index up +6.51%, and the Information Technology Index up +5.85%. These are all month-to-date numbers as of Friday the 26^th close. The year-to-date results are also impressive. The S&P Semiconductor Index is up +28.40%, the S&P Telecommunication Services Index is up +25.38%, and the Information Technology Index is up +20.33%. Other standout performances in September are from the S&P Biotechnology Index, up +9.12% MTD and now up +8.87% YTD, and from the S&P Metals and Mining Index, up +12.21% MTD and up an incredible +63.24% YTD. The S&P Metals and Mining Index includes companies involved in the production or extraction of metals and minerals. Years ago, this index was dominated by the gold and silver industry. Today, while gold and silver mining are still principle components, there is renewed interest in rare earth and critical minerals such as lithium.

Emerging markets have continued their strong push, with the MSCI Emerging Markets Index up +5.50% in September, and up an impressive +25.57% YTD. European equities are up as well in September, with the MSCI Europe Index up +0.87% MTD, and up +26.10% YTD. The MSCI EAFE Index is up +0.81% MTD and up +23.79% YTD. So this begs a question. What will institutional investors do at this juncture with their international equities, already up a very comfortable +25% YTD, going into the last quarter of the year? Bear in mind that virtually all of these gains are short-term, having developed in just five months, and institutional investors are very concerned about the taxable status of their gains. Will they work to protect or extend profit?

Bond markets continue to fight their own battles, with the primary adversaries being inflation fears boiling over from potential tariff outcomes. Bond markets are accustomed to inflation concerns, as well as a certain level of political pressure. But the scenarios that can be spun from tariffs is like golden thread that is poisonous to the touch. The truth is, nobody actually knows the answers yet, which is NOT how bond markets like their business conducted. They prefer lots of math and post-event analysis, not forward-looking analysis. Until the role of the Federal Reserve is better defined in their new business of projections and dot-plot charts, it appears that bond investors will have to be satisfied with their cash flow for the foreseeable future. The Bloomberg US Aggregate Bond Index is up +0.87% thus far in September, and is now up a very respectable +5.90% YTD. The Bloomberg US Corporate High Yield Bond Index is up +1.07% MTD, and is up +7.10% YTD. Municipal bond markets finally are enjoying a stronger month. The Bloomberg Municipal Bond Index is up +2.20% MTD, and up +2.52% YTD. The Bloomberg High Yield Municipal Index has gained +2.53% MTD, and is now up +1.19% YTD.

In last month’s Commentary, referring to the historical weakness of equity markets in August and September, I wrote, “Rather than just being a staging area, they might find themselves to be part of the runway.” That was written one month ago, before we enjoyed this September’s results. At the risk of being very myopic, and with full knowledge that one month, or even two, do not a market make, I do find it very interesting that financial markets have just breezed through the most difficult part of the calendar year in splendid fashion. The S&P 500 Index is only up +14.05% YTD. Normally, that would be a pretty good year, but this year has the entire fourth quarter ahead. I do not like to make forward-looking remarks, and I do not like data-mined conjectures. That being said, there is just enough skepticism and pessimism in the street to allow a bigger, better plan to develop under cover of the fog of politics. Which puts us on the runway.

Edward D. Foy, Manager, SELECTOR^® Money Management, Chief Investment Officer, Foy Financial Services, Inc.

Sources: StockCharts, Morningstar, Stock Trader’s Almanac.