September reinforced its reputation as one of the worst months for stocks. The S&P 500, for example, dropped 1.5%. Thankfully, the declines over the past two weeks weren’t enough to entirely erase the gains we have seen over the past quarter. In fact, the broad-market index, which reached a record high on Sept. 18, just managed to post its seventh straight quarterly gain. This quarter also saw a successful IPO season, with $66.8 billion raised through IPOs globally ($40 billion in the U.S.), resulting in the busiest third quarter in more than a decade, according to Bloomberg figures.
|6/30/14 Close||9/30/14 Close||Change||Gain/Loss|
Performance reflects price returns as of September 30, 2014.
In other news, Bill Gross’ sudden departure from the company he founded prompted investors to pull $446.5 million from Pacific Investment Management Co. (PIMCO). And, we’ve experienced some volatility over the past three months, marked by geopolitical concerns (e.g., Russia, Ukraine, Iraq, Syria, Hong Kong, Afghanistan, Scotland, Catalan, Spain, etc.). The markets, for the most part, chose to ignore many of these issues throughout the quarter, but things came to a head Sept. 25, when they stumbled on a confluence of factors, including mixed economic data.
Consumer confidence, for example, unexpectedly declined in September to a four-month low. But property values increased slightly over the past year, according to the latest S&P/Case-Shiller index numbers. The three-month averages on shipments and new orders of capital equipment have shown a healthy trend, pointing to strength in business fixed investment. Recent strength in capital spending likely reflects improved business sentiment, according to Raymond James Chief Economist Scott Brown. That optimism may prompt new hires, as well, feeding the growth cycle, he noted. Economists also predicted – correctly – that GDP would be revised upward to a 4.6% annualized growth rate for the second quarter.
“The second quarter’s strength must be balanced against the first quarter’s weakness,” noted Brown in his recent commentary. “As the third quarter ends, we still don’t have a complete picture. However, figures are likely to suggest a moderately strong pace of growth and a gradual taking up of economic slack.”
Investors and the Federal Reserve are scrutinizing the data for signs that the economy will soon be strong enough to withstand higher interest rates. The central bank is on course to end its bond-buying program in October and will consider increasing interest rates (the first such move since 2006) if the economy continues its upward trajectory. For now, the Fed remains patient, as do we. We’re awaiting reports on manufacturing and labor later this week, as well as corporate quarterly earnings, and that data may give the equity markets more direction
I’ll continue to monitor developments from the Fed and the latest economic data, as well as any news from the domestic and emerging markets. And, I’ll be sure to share any trends that could affect your long-term financial plan.
In the meantime, if you’d like to discuss recent market events or want to review your portfolio as we head into year-end, please call me. I look forward to speaking with you.
Derrick Sands, CFP®
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The performance mentioned does not include transaction costs which would reduce an investor’s return.