In the following piece, Fifth Third’s Investment Management Group recaps the market and how it reacted to various events in the month of September. I hope you find this Financial Market Roundup helpful and informative.

September was one of those months that remind us that comfort truly breeds complacency. We ended August on a positive note, with the S&P 500 making new all-time highs. We strolled into September feeling pretty good about ourselves. Then we get a very disappointing August jobs report, but still, no big deal, we pushed higher through the first half of the month making more new all-time highs. We were comfortable, we were complacent, and then the market sold off over one and a half percent during the second half of the month.

Let’s take a closer look at what happened to risky assets in September. All posted negative returns, with large cap domestic continuing to fare better than its international counterparts, both developed and emerging.

  1. The MSCI World Index, a broad measure of developed world’s stock markets declined 2.67 percent for the month.
  2. The S&P 500, a measure of large U.S. companies, declined 1.40 percent for the month.
  3. The MSCI Emerging Market Index, a broad measure of the emerging world’s stock markets, declined 7.39 percent for the month.
  4. The MSCI REIT Index declined 5.97 percent for the month.
  5. Gold declined 6.11 percent during the month.

The weak performance in September is just the third monthly loss for the stock market this year. Geopolitical worries, a weakening European economy and the prospect of higher interest rates weighed on stocks, even though corporate earnings and the over-all economic outlook remain decidedly positive in the U.S. We have to remind ourselves that market corrections are healthy for stocks, especially when making new all-time highs is a regular occurrence. We are still in the midst of a structural bull market but U.S. equities do not exist in a vacuum. Slowdowns in the economies of Europe, China and Japan have a domestic impact, so does the acceleration of geopolitical turmoil in those regions. The threat of Russia nationalizing foreign assets was the catalyst for September’s mid-month sell off, and our growing involvement in the Middle East will likely be a source of market volatility in the months to come.

The Federal Reserve will end its bond-buying program later this month and is widely expected to start raising short-term interest rates in the first half of next year. Some investors worry that the recovery will not be able to withstand tighter monetary policy, citing the low yield on the U.S. 10-year Treasury as proof that the economy is not yet ready to stand on its own two feet. Fed hawks argue that tighter policy is appropriate now that the unemployment rate is near 6 percent and the economy, on average, adds more than 200K new jobs every month. However, one of the Fed’s dual mandates, inflation, remains below the central bank’s 2 percent target and gives Fed Chair Janet Yellen breathing room to keep the policy rate near zero as she waits for signs of upward pressure on wages.

Even if wages stagnate, disposable consumer income is on the rise, thanks in part to low financing costs and falling energy prices. Increased oil production here in the U.S., and less demand from China and Europe, has led to a 16% drop in crude prices since July of this year, sending the price of the valued commodity to an 18-month low. Putting even more downward pressure on the price of crude is the seemingly unstoppable rally in the U.S. dollar, a trend that will likely continue as the Fed tightens policy in the months ahead.


Market commentary provided by Fifth Third Bank. *Source of statistics is Bloomberg.com. Returns are calculated from market close on 7/31/14 through 8/29/14. This information is current as of the date of this letter and the opinions expressed are subject to change at any time, based on market and other conditions. This information is intended for educational purposes only and does not constitute the rendering of investment advice or specific recommendations on investment activities and trading. The mention of a specific security within this letter is not intended as a solicitation to buy or sell the specific security. Index performance shown within this letter is not representative of any Fifth Third managed account.

Investing involves risk, including the possible loss of principal invested. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment loss.

Past performance is no guarantee of future results. Indexes are unmanaged, do not incur investment management fees, do not represent the performance of any particular investment, and may not be invested directly into by investors. Small company investing involves specific risks not necessarily encountered in large company investing such as increased volatility. Investments in foreign markets entail special risks such as currency, political, economic and market risks.

S&P 500 Index is a composite of 500 companies, amongst the largest based in the United States, and it often used as a measure of the overall U.S. stock market.

MSCI EMF (Emerging Markets Free) Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2006 the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

MSCI US REIT Index is a free float- adjusted market capitalization weighted index that is comprised of equity REITs that are included in the MSCI US Investable Market 2500 Index, with the exception of specialty equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The index represents approximately 85% of the US REIT universe.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States*.

Gold Index is the U.S. dollar per Troy ounce.


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