Fidelity Bank - Wealth Management
September 2019 Market Review
William J. Fennie III, CFA
After a volatile August, September saw stocks rebound and yields bounce higher off their lows. The prospect of the US-China trade war deal, a delayed Brexit, and monetary easing by both Federal Reserve and the European Central Bank (ECB) helped soothe recessionary fears and less than optimal economic data. During the month, US stocks gained 1.87% and Bloomberg Barclays US Aggregate Bond index lost 0.53% in September.
September also saw a sharp reversal of Value stocks trailing Growth stocks. The Russell 1000 Value Index outperformed the Russell 1000 Growth Index by 3.56% (R1V: +3.57%; R1G: +0.01%) in September. Small Cap Value was one of the best performing equity asset classes during the month, rising 5.13%, outperforming Small Cap Growth names by 5.95%. Looking across all capitalization levels, those stocks most associated with the “Value Factor” outperformed those least associated with the factor by 11.94% during the month.
Given the dispersion of the Value and Growth indices during the month, the Global Industry Classification Standard (GICS) sectors told a similar story. Financials, Utilities, and Energy sectors led the way, up 4.64%, 4.26%, and 3.88%, respectively. Health Care and Communication Services were the laggards, falling 0.17% and rising 0.13% in September, respectively.
Dollar strength detracted from returns for US investors in Developed Markets, while dollar weakness bolstered Emerging Markets returns. The Dollar Index, which measures the US Dollar against Developed Market currencies, strengthened by about 0.47% in September. The MSCI EAFE index gained 3.54% in local currency terms but gained only 2.87% in US Dollar terms. The MSCI Emerging Market Currency Index strengthened by 0.92% versus the US Dollar in August. The MSCI Emerging Markets index gained 1.47% in local currency, but the conversion to US Dollars increased that gain to 1.91%. Brexit and trade war consternation continues to be the market moving headline.
The Federal Reserve’s second rate cut in this easing cycle and more easing from the ECB, caused short-term rates (1-month to 1-year) in the US to fall while longer-term rates (2-year to 30-year) increased. European rates increased across all maturities except the 1-month rate. As a result, Treasuries fell 0.85% during September. Currently (as of writing, 10/8), market participants are pricing in an 81% chance of a 25-basis points rate cut at the October Fed meeting according to Fed Funds Futures.
High Yield Bonds rallied 0.36% in September. High Yield spread to 10 Year Treasury bonds fell by 24 basis points to end the month at 3.97%. The long-term average spread is about 5.13%. High Yield bonds yielded approximately 5.65% at the end of September. Investment Grade Corporates fell 0.65% in September. Year-to-date Investment Grade Corporates and High Yield Corporates are up 13.20% and 11.41%, respectively.
In international fixed income, German Bunds yields bounced off their low of negative 72.5 basis points interest and closed the month negative 58 basis points. US Dollar weakness supported Emerging Markets Debt in September, rising 0.96%. Year-to-date Emerging Markets Debt is up 7.86% and currently yields about 6.51%.
The Bloomberg Commodity Index gained 1.17% in September with Agricultural commodities leading the way by gaining 5.12%. However, all the headlines during the month concentrated on oil. Oil spiked from $54.94 on September 13th to $62.90 on September 16th after the attack on the Saudi oil refinery spawned supply worries. However, prices reverted quickly as supply concerns abated and oil closed the month at $54.07, a loss of 1.87% from the end of August. Gold lost 3.69%. Real estate gained 1.88% and is now up 28.49% year-to-date.
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September 2019 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data as of 9/30/2019. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large‐cap segment of the U.S. equities market.