September Monthly Recap

Tim Side, CFA® – Investment Strategist

Rick Bettger – Investment Research Analyst

Click here to download the PDF

Monthly Observations

September Lives Up to Long-Term Reputation

September has the reputation as the worst performing month of the year for good reason. Since 1970, the S&P 500’s (S&P) September returns averaged -0.70%compared to positive averages for every other month. This year followed that script, with the S&P down -4.77% for the month as market participants dealt with rising oil prices and surging bond yields. Domestically, U.S. large caps outperformed U.S. small caps, even as the so-called “magnificent seven” tech giants fell off their summer heights and Value outperformed Growth. Outside the U.S., September saw headline inflation fall in Europe to its lowest level in two years and China’s economic woes continued. Overall, while developed and emerging markets were each down for the month, they both outperformed domestic markets. On the fixed income side, yields pushed higher with the 10-Year Treasury closing the month at 4.59% compared to 4.09% at the end of August.

U.S. Government Shutdown Avoided

Congress reached an eleventh-hour deal to keep the U.S. government running until November 17th, but negotiations on longer-term appropriations bills may be complicated by the ousting of House Speaker Kevin McCarthy. Historically, markets have been largely immune to government shutdowns, but it remains to be seen how a drawn-out closure could affect the economy in this polarized political environment.

Fed Pauses Rate Hikes

Following their hike in July, the Fed paused on further rate hikes as it continues to assess the results of its monetary tightening. The Fed dot plot revealed a divide within the voting members of the Federal Open Market Committee (FOMC), but 12 of 19 members felt another increase is needed in 2023, discouraging equity investors. Additionally, the FOMC dots indicated rates may need to be held at elevated levels through 2024, which is an increase from projections made earlier this year.

Commentary From Asset Managers

Global Asset Manager

Many large cap companies termed out their debt in the low-rate environment and are putting excess cash in treasuries, improving earnings by 5%. Many consumers did the same thing, as the effective mortgage rate (weighted interest rate on outstanding mortgage loans) is only 3.7%.

US Small Cap Growth Manager

Many small cap companies who took on floating rate debt are struggling. Many will survive, but growth plans have been “nuked.” This is not showing up in the data but may appear in a couple of quarters as these companies have less incremental money to spend.

Municipal Bond Manager

The credit quality of municipal bonds is incredibly strong, as this manager sees six upgrades for every downgrade. This was initially driven by the 5th round of Covid stimulus, which put $360 billion into state funds, and then aided by strong revenue collections from local governments in 2022. Some states blew through this funding while others used it to strengthen rainy day funds. Supply remains extremely limited due to strong competition from Treasury bills.

Source: Morningstar Direct, Bloomberg; See important information in the disclosures.


© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

Morningstar Direct as of 08.31.2023
Bloomberg as of 08.31.2023
Manager comments come from discussions with various asset managers and are broad commentary on sectors and not be considered recommendations by any asset manager. These comments do not necessarily reflect strategy allocations or the view or opinion of MGIA or Moneta Group.

The S&P 500 Index is a free-float capitalization-weighted index of the prices of approximately 500 large-cap common stocks actively traded in the United States.
The NASDAQ Composite Index is a market capitalization weighted index with more than 3000 common equities listed on the NASDAQ Stock Market.
The Russell 1000® Index is an index of 1000 issues representative of the U.S. large capitalization securities market.
The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000® Value Index measures the performance of those Russell 1000 Index securities with lower price-to-book ratios and lower forecasted growth values, representative of U.S. Securities exhibiting value characteristics.
The Russell 2000® Index is an index of 2000 issues representative of the U.S. small capitalization securities market.
The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada.
The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies.
Bloomberg U.S. Treasury Bond Index includes public obligations of the US Treasury, i.e. US government bonds. Certain Treasury bills are excluded by a maturity constraint. In addition, certain special issues, such as state and local government series bonds (SLGs), as well as U.S. Treasury TIPS, are excluded.
The Bloomberg U.S. Municipal Index covers the USD-denominated long-term tax exempt bond market. It includes general obligation and revenue bonds, which both can be pre-refunded years later and get reclassified as such.
The Bloomberg U.S. Aggregate Bond Index is an index, with income reinvested, generally representative of intermediate-term government bonds, investment grade corporate debt securities and mortgage-backed securities.
The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility and financial issuers.
The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on the indices’ EM country definition, are excluded.
The US Dollar Index measures the US dollar against six global currencies: the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.
The FTSE Nareit All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.
The S&P Global Listed Infrastructure index measures the performance of global companies that are engaged in infrastructure and related operations. It provides liquid and tradable exposure to 75 companies from around the world that represent the listed infrastructure universe. To create diversified exposure, the index includes three distinct infrastructure clusters: utilities, transportation and energy.
Brent crude is the most traded of all of the oil benchmarks, and is defined as crude mostly drilled from the North Sea oilfields: Brent, Forties, Oseberg and Ekofisk (collectively known as BFOE).
The Dow Jones Commodity Index Gold is designed to track the gold market through futures contracts.
The ICE BofA Option-Adjusted Spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond’s OAS, weighted by market capitalization. The Corporate Master OAS uses an index of bonds that are considered investment grade (those rated BBB or better). When the last calendar day of the month takes place on the weekend, weekend observations will occur as a result of month ending accrued interest adjustments.
The ICE BofA Option-Adjusted Spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond’s OAS, weighted by market capitalization. The ICE BofA High Yield Master II OAS uses an index of bonds that are below investment grade (those rated BB or below).

Asset class valuations are a percentile ranking based on monthly data going back to common inception of 9/1/2006. The US Large Cap percentile is the average percentile ranking of the trailing P/E, P/B, P/S, and P/C ratio of the S&P 500 Index. The US Small Cap percentile is the average percentile ranking of the trailing P/E, P/B, P/S, and P/C ratio of the Russell 2000 Index. The International Developed percentile is the average percentile ranking of the trailing P/E, P/B, P/S, and P/C ratio of the MSCI EAFE NR Index. The Emerging Market percentile is the average percentile ranking of the trailing P/E, P/B, P/S, and P/C ratio of the MSCI Emerging Markets NR Index. The 10-Year US Treasury percentile is the percentile ranking of the 10-Year US Treasury yield. The Investment Grade percentile is the percentile ranking of the ICE BofA US Corporate option adjusted spread. The High Yield Corporate percentile is the percentile ranking of the ICE BofA US High Yield corporate option adjusted spread. The Municipal/Treasury percentile is the percentile ranking of the Bloomberg Municipal Index yield divided by the 10-Year US Treasury Yield.

Additional articles