On average, September is the worst month of the year for stock market performance. Going back to 1950, September has averaged an S&P 500 decline of 0.5%, but for September 2017, the S&P 500 gained 2.06% driven by strong corporate earnings and rapid global growth. I have never given any weight to trends like September being the weakest month of the year. Just when you might act on that trend and reduce your stock positions you miss out on a 2% gain in just 30 days.
September overcame a series of threatening events:
- Apple fell 6% in September after announcing three new iPhone models.
- Arguments between the U.S. and North Korea grew louder.
- The White House and Congress punted the debt ceiling deadline into December.
- Another Republican repeal of Obamacare failed in the Senate.
- The Federal Reserve still wants to raise interest rates in spite of weak inflation data.
- In response to all these threats, the U.S. stock market grew more serene with the CBOE Volatility Index (VIX) closing out the third quarter near its lowest reading on record.
Year-to-date, nine of the eleven market sectors continue to gain value. Telecom and energy are the two sectors that are negative for 2017, and they posted nice gains in Q3. The Russell 2000, a small company index, reached an all-time high in Q3. In our portfolios, small company allocations produced the best gains in September followed by semiconductors as a subset of technology. International allocations came in third. The yield rose on the U.S. 10-year Treasury in September, and we are keeping our bond durations relatively short to reduce risk. Both taxable and tax-free bond allocations are positive for 2017.
For the past seven quarters, overall U.S. household wealth rose while household debt reached the lowest level since 2000. Healthy household balance sheets indicate this economic expansion is far from over.