Equity markets recovered from a weak August to have a satisfactory September. Major indices, both US and International, were up between 1.87% and 2.87%. In the investment grade bond market interest rates ticked up a bit, so the index was down modestly. High yield investments posted a slightly positive return that was coupon driven.
September saw a widely anticipated rate cut by the Federal Reserve. Markets seem to be expecting more as Fed Funds futures currently imply a greater than 90% chance of a cut in October and a 50% chance of yet another cut in December. We view all of this as the Fed working on moving short-term interest rates back to a neutral level, which is significantly lower than previously thought.
The economic data has been mixed. While unemployment is low and consumer spending has been strong, the industrial economy has been weak with the ISM manufacturing index recently dipping below 50. Whether the weakness in manufacturing spills over into the service economy remains to be seen.
2019 thus far has been a good year, but there is still a quarter to go. October is historically a difficult month and last year the fourth quarter was very difficult for investors. On top of that, we are entering an election year so various polls will start to impact various sectors of the market. We expect to get more and more questions from clients about the impact a given outcome may have on markets. The only prediction we feel comfortable with right now is that we expect volatility along the way, but that is also a normal feature of markets.