September 2021 | Global Equity Markets
September was the first month since January that the S&P 500 registered a decline. The -4.65% return was the steepest drop since the pandemic month low of March 2020. Much was written in the financial press about September being seasonably the weakest month of the year (true); however, there were other more substantial factors influencing the decline. Increasing skepticism over the “temporary” surge in inflation and its influence on Federal Reserve monetary policy, rising concern over taxes and federal spending, the continued struggle with COVID and a long run of higher stock prices in previous months were confluent forces in September pushing the market lower. The damage was minimized in other indexes with mid and small cap indices losing less while the value style provided strong protection against larger growth style declines. Ten of the eleven major economic sectors registered drops with Energy being the only positive sector return.
The lack of market breadth was an issue commented on in past reviews as mega cap stocks were concealing underlying fatigue following a record setting bounce off the market bottom. The chart below is a measure of how many stocks in the broad universe of U.S. equities which were 20% off their 52-week high. This gauge bottomed in March and has been moving higher in subsequent months. The concentration of market leadership is an unhealthy sign and one vulnerable to the bad news which floated to the surface last month. From a constructive standpoint, a reset of expectations to a lower level leaves the market poised to react to positive news in the following months. Global economic momentum remains robust and the most current data on the Delta variant appears to be peaking. Valuations on stocks are full but a combination of lower prices and increasing earnings can quickly change the dynamic to a more positive tone.
International equity markets took their cue from the U.S. market but overall produced more modest losses than the headline U.S. benchmarks. The S&P Global Benchmark ex-U.S. declined 3.02% in total return compared to the -4.53% result for the S&P U.S. benchmark. By region of the world, the Asia-Pacific region produced the strongest relative return while Latin America registered the weakest. Similar to the U.S., indices tracking smaller stocks overseas held up better than those which feature the biggest companies in the world. Market returns in overseas markets were even stronger in local currency returns as the dollar registered a modest gain in almost all regions, partially offsetting the return for U.S. investors with overseas holdings.
The major factors occurring in equity markets in September suggest no major shifts in our strategy. We remain in an environment where volatility is high and visibility on the post pandemic recovery is low. It is this type of investment landscape when tactical moves often move away from rather than toward long term goals. We find that patience is often the best long-term strategy.
Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 9/30/2021 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:
- The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
- The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
- The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
- The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
- The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
- The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
- The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
- The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
- The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
- The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
- The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
- The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
- The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.
Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.
- The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
- SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
- West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
- CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.
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