“Good investors gather information, put that information into current and historical context, then make sound decisions.”
After a surprisingly productive July and August, September has seen equity indexes exhale. Rising and declining days have been equal in September at nine apiece, but four of the down days were sharply lower. This tipped the S&P 500 Index into a moderate correction of -10.0%, but not until it first hit an all-time high of 3588.11 on September 2nd. It is still too early to say whether this correction has run it’s course, but with only three trading days left in the month, and after the best upside day of the month last Friday, things may be wrapping up.
Yes, you read that correctly, the S&P 500 Index hit an all-time high on September 2nd. If you missed it, you are forgiven, because it spent less than two weeks in record territory, which was last touched back in February of this year. So far in September the S&P 500 Index fell -5.66% and is now up +3.53% YTD. The S&P 400 Mid Cap Index declined by -5.58% and is down -10.82% YTD. The S&P 600 Small Cap Index has fallen -7.02% in the month and is down -17.31% YTD. On the international front, the MSCI Europe Index has fallen by -5.61% so far in September and is down -11.00% for the year. The MSCI Emerging Markets Index declined by -3.72% thus far in September and is down -3.29% YTD.
Sector declines for equities in September thus far have also been relatively equal. Starting with the leadership sectors YTD, the Dow Jones Internet Composite Index has fallen -6.63%, the S&P Composite 1500 Information Technology Sector Index is down -7.63%, and the S&P Composite 1500 Consumer Discretionary Sector Index is down -5.21%. The S&P Composite 1500 Health Care Sector Index is down -4.53% and the S&P Composite 1500 Financials Sector declined -6.06%. The only sector that has gained ground in September thus far has been utilities, with the Dow Jones Utilities Average up +0.83%. Energy is having the roughest September with the S&P Composite 1500 Energy Sector Index down by -14.13% thus far.
Investment grade bond markets have been flat in September. The Bloomberg Barclays 1-3 Month T-Bill Index is up +0.01% for the month and up +0.52% YTD. The Bloomberg Barclays U.S. Aggregate Bond Index is down -0.02% in September and up +6.83% YTD. The Bloomberg Barclays U.S. Corporate High Yield Bond Index is down -1.75% in September and down -0.11% YTD. This begs the question, if equity markets sold off by roughly five percent in September and bond markets were flat, where did the money go? We believe it is standing on the sidelines, waiting for institutional investors to call the next series of plays. For how much longer remains to be seen. There is another entire quarter to play, and an election to be decided along the way.
The U.S. Economy has made huge progress in the past six months and 3rd quarter reports should be equally huge. Interest rates are at rock bottom lows and projected to stay there for as long as the next couple of years. Housing and retail sales continue to surge. Corporate profits continue to rise. These are all positives for financial markets. But the Volatility Index remains high so market responses to specific news events could still be unpleasant. There are going to a myriad of distractions for financial markets over the next several months. Almost all of them will prove to be insignificant in the long run, but resound loudly and disturbingly in the moment, not unlike the unexpected firecracker before the 4th of July. Not surprisingly, the primary goal of these distractions is to disturb rather than entertain, and it is important to maintain perspective. Yes, I am talking about our daily news reports, and yes, I am referencing the conspiracy theories that already abound. September stuck to its negative reputation. But Bull Markets during election years have quite the positive reputation as well!
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
Sources: Bloomberg.com, Marketwatch.com, StockCharts.com, Morningstar.