U.S. equities continued to set records in September, despite rising interest rates and ongoing uncertainty regarding global trade policy.  Emerging markets (EM) equity fell sharply at the beginning of the month on concerns about these themes; they rallied in the second half of the month.  Despite a poor start, the Brazilian real, Russian ruble, and Mexican peso closed the month in positive territory relative to the U.S. dollar, while the Turkish lira showed signs of recovery.  Rising U.S. interest rates provided headwinds for Treasuries and the broad investment-grade market.  High yield bonds were insulated.

September capped a strong quarter for domestic equities.  Returns across sectors were mixed.  Financial services, materials, and real estate were down slightly.  At the other end of the spectrum, communication services was the top-performing sector.  Prior to the market close on September 21st, the sector formerly referred to as telecom services comprised three stocks that in aggregate accounted for 2% of S&P 500 assets.  Following the reconstitution, the sector was expanded to include former IT constituents Alphabet (Google) and Facebook, as well as media companies such as Netflix and Walt Disney.  This transition represents the most meaningful change to GICS since it was introduced in 1999, with communication services representing 10% of Index assets at month end.

Non-U.S. equities experienced a notable shift in stylistic leadership, as value outpaced growth after a prolonged period of disappointing relative returns.  The success of value was largely attributable to a rally in energy.  The struggles of IT accounted for much of the weakness in growth names. The impact was most significant in EM, where the IT sector fell 3.0% as Alibaba, Tencent, and Samsung all declined.  Each of these companies was a top position in the benchmark and served as a key driver of the growth rally.  MSCI continues to classify Tencent and Alibaba as IT names.  Following MSCI’s November semi-annual index review, the stocks will be reclassified as communication services and consumer discretionary names, respectively.

Marketable real assets delivered mixed results during the month.  Crude oil prices advanced for the second straight month and reached a four-year high despite concerns regarding the impact of trade tensions.

The rally was driven by continued robust global demand and supply concerns related to Venezuela’s economic collapse, as well as renewed sanctions on Iran.  Elsewhere, industrial metals prices and related metals and mining stocks kept declining on concerns that the escalating trade war could dampen global growth and, therefore, demand for metals.  Chinese growth concerns contributed to the fall, as China is the largest consumer of copper, zinc, nickel, and many other commodities.  U.K. property stocks were down 2.1%, as investors worried about the potential impact a hard Brexit could have on space demand.  The disappointing outcome of the Brexit summit in Salzburg, as well as increasing pressure on Prime Minister Theresa May, appeared to amplify the market’s concerns.  In addition, U.K. property stocks moved lower on disappointing retail spending and continued growth in e-commerce, which is disrupting business for existing retailers.

 

Research Report Request

To request a full copy of this or any of our research reports, please complete all fields in the form and click submit.

  • This field is for validation purposes and should be left unchanged.
Indices referenced are unmanaged and cannot be invested in directly.  Index returns do not reflect any investment management fees or transaction expenses. Past performance is not an indication of future results.  This report is intended for informational purposes only; it does not constitute an offer, nor does it invite anyone to make an offer to buy or sell securities.  Information herein has been obtained from third-party sources that are believed to be reliable; however, the accuracy of the data is not guaranteed and may not have been independently verified. The content of this report is current as of the date indicated and is subject to change without notice.  It does not take into account the specific investment objectives, financial situations, or needs of individual or institutional investors.   All commentary contained within is the opinion of Prime Buchholz and intended solely for our clients. Unless otherwise noted, FactSet was the source for data used in this report. Some statements in this report that are not historical facts are forward-looking statements based on current expectations of future events and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.