Stocks fought off a hurricane, a trade “war”, and a fed rate hike to reach new all time highs during the month of September. The SPDR S&P 500 ETF (SPY) finished the month with a total return of 0.5% for the month and a year to date return of 7.6%. The NASDAQ as measured by the Invesco QQQ ETF (QQQ) peaked at new highs at the end of August but rallied back in the later half of the month and again approach new highs, finishing September with a total return of -0.2% and a YTD mark of 19.9%.
The SPDR Gold Shares ETF (GLD) continued its slump returning -0.6% for the month resulting in a YTD return of -8.8%.
Interest rates continued to rise as the yield on the Ten Year Treasury, which started the year at 2.4%, went from 2.86 to 3.06% in September. Accordingly the iShares Core US Aggregate Bond ETF (AGG) posted a total return of -0.8% for the month and stands at a -1.9% loss on a total return basis year to date.
Core ETF Performance
ETF September Year to Date
SPY – SPDR S&P 500 0.5% 7.6%
QQQ – Invesco QQQ (NASDAQ) (0.2%) 19.9%
GLD – SPDR Gold Shares (0.6%) (8.8%)
AGG – iShare Core US Aggregate Bond (0.8%) (1.9%)
Markets have been nervously watching the back and forth between US and China for some time, but rhetoric certainly heated up in September peaking with an announcement that the US would impose $200 Billion of tariffs on Chinese goods, and the Chinese responding with a plan to impose $60 Billion of Tariffs. In addition, for most of the month there seemed to be little progress on talks with Canada regarding inclusion in a new NAFTA agreement, but as the month closed a deal was reached to include Canada in a trilateral agreement with the US and Mexico. Some observers have noted that with the NAFTA loopholes closed in the new agreement the table is now set for the Trump administration to move toward an end game in negotiations with the Chinese.
On the Federal Reserve front, The September open markets committee meeting yielded the expected quarter point hike in the fed funds target rate to 2.00 – 2.25%. The consensus looking forward is for another quarter point hike at the December meeting followed by 3 similar hikes in 2019.
Gold has continued to zig while the market zags, but as an alternative investment that is to be expected and to an extent desired. A strong dollar , tame inflation reports and strong earnings growth for stocks has led to another year of sub par returns. In addition a controlled rise in interest rates can make bonds more appealing to hold versus gold as well. However, by design this may provide investors an opportunity to rebalance portfolio allocations, moving some money from the out performers to the under performers on a regular basis is a systematic formula to give one a chance to execute the golden (if elusive) objective of buy low, sell high.
How much room is left for stocks to rise? It is a tough question, but investors will get more answers as we enter 3rd quarter earnings season. According to Briefing.com year to date earnings for the S&P 500 have seen the “strongest growth in eight years.” No doubt that in addition to reported earnings, investors will be focused on company guidance including any concerns noted of the trade war / tariff front, as well as potential signs or issues related to inflation (even as core PPI remains tame).
Focus will also turn to the midterm elections and the prospects of further tax cuts that the Trump administration has hinted at.
DISCLAIMER: Nothing in this article should be construed as a personal recommendation or advice. Nor should anything in this article be construed as an offer, or a solicitation of an offer, to sell or buy any investment security. Barnhart Investment Advisory clients and principals may hold positions in any securities mentioned in this article. Investors should conduct their own due diligence and seek the advice of a financial and/or investment professional before making any investment decisions.