Highlights for the week ending October 4, 2013:
- Domestic stock prices hit a snag this week. September ended with the S&P 500 gaining +3.1%, but with the partial government shutdown beginning on October 1st, investors decided to book some profits. Equities gained today amid growing optimism that the budget impasse would be resolved soon and the first government shutdown in 17 years would come to an end.
- Global markets were mixed on the week. World markets reacted in sympathy with domestic U.S. indices, with the budget stalemate causing some investors, particularly in developed European countries, to stay on the sidelines. Emerging markets fared better overall, with many markets advancing each of the last four days.
- Treasury prices were little changed for the week. The yield on the benchmark 10-year U.S. Treasury was basically flat. Yields are hovering near a seven-week low as investors await news about budget negotiations.
- Commodity indices were mostly lower on the week. Crude oil posted slight gains, but metals and grains declined sharply.
A Macro View – September 2013 Monthly Recap
Domestic equity markets generally posted large enough gains in September to recoup most of the losses incurred in August. Driving the market’s gains during the month once again was the Fed’s decision as to whether to taper its quantitative easing program. Speculation had increased during August that the Fed would indeed announce a scaling back of its program following its September meeting, but economic data was lackluster enough that the Fed decided to stand pat. The decision propelled both equity and fixed-income markets higher for the month. Also bolstering the market was an easing in the tensions surrounding Syria, as well as a continued improvement in the housing market. The government shutdown had yet to begin by the end of the month, but the market didn’t seem to be overly concerned that it would be a drawn out affair. For the month, the S&P 500 advanced +3.1%. The Dow Industrials posted a +2.3% gain, and the tech-heavy Nasdaq Composite Index was up a robust +5.1%. The Russell 2000 Index of small cap stocks outperformed the Russell 1000 Index of large cap stocks, with gains of +6.4% and +3.5%, respectively. In terms of sector performance, industrials were the strongest performers on a relative basis, gaining +5.7%, while telecom services declined by -0.5%.
International equity markets again performed well relative to domestic U.S. markets in September, with the MSCI World ex-U.S. Index advancing +7.1% for the month. Continuing a recent trend, developed markets once again outperformed emerging markets during the month, with the MSCI EAFE Index jumping +7.4% and the MSCI Emerging Markets Index gaining +6.5%. Regionally, Eastern Europe and Latin America fared the best, with the MSCI Eastern Europe Index advancing +9.0% and the MSCI Latin America Index climbing +8.6% for the month. Japan also had a good month, gaining +8.4%, and is now up +24.5% on a year-to-date basis. Other Asian markets also fared well for the month.
Fixed-income markets rebounded sharply in September after trading lower in August. As with the equity markets, the key driver of activity was the Fed’s announcement that it would not taper its quantitative easing program yet, but would wait until economic data shows a more clear uptrend. Many analysts believe the Fed will announce a scaling back in the program at its December meeting. Against this backdrop, the benchmark 10-year U.S. Treasury yield ended the month at 2.61%, a decline of 13 basis points from August. Yields had peaked at 2.98% early in the month before investors began to speculate the Fed may not taper after all. Broad-based fixed-income indices advanced in September, with the Barclays U.S. Aggregate Bond Index gaining +1.0% for the month. Global fixed-income markets posted especially strong gains for the month, with the Barclays Global Aggregate ex-U.S. Index surging +2.8%. High yield bonds advanced with other risk assets like stocks; the Barclays U.S. Corporate High Yield Index posted a gain of 1.0% for the month. Municipals also recouped the significant losses experienced in August by climbing +2.2% in September.