September Market Commentary

Value investors rejoiced in September as value stocks outperformed growth stocks during the month, gaining in the low-to-mid single-digits range. International stocks gained in the low single-digit range as well, outpacing US stocks; a rare occurrence over the past decade. After gaining in August, bonds in September posted modest losses. For the first nine months, stock and bond returns remain strong, with returns over the past three months modest.

While the stock market flirted with all-time highs in September, the investment landscape is becoming more complicated. The constant drumbeat of the trade war with China has led to continued weakness in global manufacturing data. While many international countries are nearing recessionary levels due to their manu-facturing-based economies, the US economy remains on solid footing, thanks to strong consumer spending.

A few new worries, however, emerged over the past month. Late in September, Nancy Pelosi announced the initiation of a formal impeachment inquiry against President Trump. From a political standpoint, we believe this may make it extremely difficult for anything to be accomplished in Washington over the next year, through the Presidential elections in 2020. The passage of any significant trade deal has become much more challenging with the impeachment inquiry now under way. While investors would cheer a trade deal with China, we are bracing for the fact this may take a longer time to resolve. Both the US and China have dug in their heels and the political environment just became more complicated. The two sides are meeting in October to continue their negotiations.

Another geopolitical risk emerging last month was the alleged Iranian attack on Saudi Arabian oil facilities. This attack has escalated tensions in the Middle East and created oil price volatility. While the U.S. is not dependent on Saudi oil as it has been in the past, increased tensions in the Middle East may create more volatility in the financial markets if the conflict deteriorates further.
The recent performance of 2019 Initial Public Offerings (IPOs) of private companies, like Uber and Lyft, provide fresh evidence that investors are becoming more critical about the fundamental performance of new public companies. The quality of these new public companies has deteriorated, as many of these organizations are not profitable, and need to continue to raise money to grow their business. As investors become more discerning about the fundamental prospects of companies in a late economic cycle, this may be a harbinger of more uncertainty in our future economic prospects.

Lastly, third quarter corporate profits will be reported over the next few weeks. The breadth of strong earnings growth is diminishing as the trade war is beginning to negatively impact more companies. If US corporations can post results better than feared, this may provide more support to the markets. In addition, the Federal Reserve has suggested their willingness to support the economy with more interest rate cuts if economic conditions worsen. While headline news may not suggest it, the actions of the Federal Reserve cutting interest rates recently, and its willingness to stand ready to provide additional support is providing backing for the financial markets. These actions provide us guarded optimism that the U.S. economy can continue to grow over the next year.

Save the Date Reminder

We once again invite you to the 9258 Wealth Management Holiday Open House! We are excited to spend time with you and your loved ones this holiday season as we celebrate and reflect upon the year as it comes to a close. We look forward to seeing you here!

The Annual 9258 Wealth Management Holiday Open House
Thursday, November 21, 4:00 – 8:00 pm

RSVP – Matt Tranquilli – matt@9258wealth.com513.794.5841