September Market Report – A Brief Correction

In this September Market Report, we discuss many of the factors that led to the slight pullback that markets faced.

The stock market was turbulent in September. Investors remained cautious amid sustained levels of Delta variant infections. In addition, signs of slowing economic growth and a political stalemate in Washington didn’t help. 
 
The Dow fell 4.3% for its worst month since March 2020, when the pandemic caused a major market sell-off 

The S&P 500 declined 4.8%. And the Nasdaq shed 5.3%. 

Investor Sentiment Struggles

Investor sentiment continued to deteriorate. Uncertainty surrounding the Fed’s anticipated tapering plans, fiscal and tax policy proposals, and news of continuing supply bottlenecks. September lived up to its reputation and dented stock portfolio returns, but not too badly. There has been a lot of concern that higher wages, higher energy prices, and higher transportation costs will weigh on earnings for the remainder of this year and into 2022. But so far, analysts remain relatively optimistic. 
 
September’s losses led to a weak third quarter for the market. For the 3-month period, the Dow dropped 1.9%, while the Nasdaq Composite shed 0.4%. The S&P 500 held on to a modest gain and is still up nearly 15% on the year. 

October has a reputation for some violent sell-offs but overall is typically the start of better seasonal performance for stocks. The S&P 500 averages a 0.8% gain for the month, according to the Stock Trader’s Almanac. 
 
The Federal Reserve held its Open Market Committee Meeting with Fed Chair Jerome Powell. In it, they exclaimed that tapering would not begin immediately but could start by November. The expectation remains that the Fed will raise interest rates based on rising inflationary pressures. Half of the 18 Fed members now expect that interest rates will be higher by the close of next year. In comparison, 7 thought that would be the case this past June. 

10-Year Treasury Volatility

The market saw volatility pick up again as the 10-year Treasury Note yield climbed in the final trading days of the month.  

Only two sectors managed gains in September, Energy (+7.3%) and Consumer Discretionary (+0.4%). The remaining sectors dropped, including Communication Services (-5.2%), Consumer Staples (-2.3%), Financials (-2.2%), Health Care (-4.3%), Industrials (-4.8%), Materials (-6.5%), Real Estate (-3.5%), Technology (-4.8%), and Utilities (-6.0%). 

The Evergrande Debacle

The market reacted sharply to news that a massive property development company in China was in danger of not making its scheduled interest payments. The Chinese government assured markets that the repercussions of default were both limited and localized and, therefore, containable. There’s expectation that the government will restructure the company.

Global Market’s Reaction

Global markets, however, remained skeptical that the collapse of the country’s largest property developer wouldn’t adversely impact the country’s banking systems. Eventually, bleeding into foreign financial centers.  
 
World Markets: The MSCI-EAFE Index slipped 3.2% in September. The European economy continues to fight the headwinds of a tightening monetary policy, multiple economic challenges in China, and political uncertainty in both Germany and Japan.  

European stocks were lower, with losses in Germany (3.6%), France (-2.4%), and the U.K. (-0.5%).  
 
Pacific Rim market performance was mixed. China’s Hang Seng index was down 5.0% and Australian ASX 200 off 2.7%. Japan was up 4.9%. 

GDP Performance

The final read on second-quarter GDP growth was revised slightly higher, from 6.6% to 6.7%.

Employment Lands Below Expectations

Employers added 235,000 new jobs in August, below the consensus expectation of 720,000. The unemployment rate dipped to 5.2%, while wages increased 4.3% year-over-year.

Retail Sales Remain Strong

Retail sales posted a 0.7% gain, despite economists predicting a decline due to the Delta variant. Excluding autos, which fell 3.6% for the month primarily due to chip shortages, retail sales rose 1.8%.

Industrial Production Returns to Pre-Pandemic Level

Industrial output tacked on 0.4%, an increase that brought industrial production to pre-pandemic levels.

Housing Remains Steady

Housing sales increased by 3.9%, greater than the consensus estimate of 1.6%. Existing home sales declined by 2.0% amid rising median prices (+14.9% year-over-year) and falling inventory (lower by 1.5%). New home sales rose 1.5%, and median sales price reached $390,900, up from $325,500 just one year ago.

Durable Goods Orders Rally

Orders for goods increased 1.8%in August, which was the biggest increase since May 2021. 

Sources

-Conscious Capital Wealth Management, LLC Monthly Report 
– The Wall Street Journal 
– CNBC.com 
– Sectorspdr.com 
– MSCI.com 
– Bloomberg.com 
– FederalReserve.gov