Here’s a look at trends in September:
Quality, large cap companies performed better than market as a whole, and dramatically better than companies with weak fundamentals.
- Why? “Risk-off” securities were in favor most of the month. (This is no longer true in October).
Higher quality bonds continued to outperform lower quality bonds of similar duration.
- Why? Fear of defaults continues to grow.
Capitalization-weighted indices beat equal-weighted indices with the same objective
Asia outperformed Europe.
- Why? The immigrant crisis affected European cohesiveness, leading to a modest sell-off.
Frontier markets outperformed emerging markets.
- Why? Both did poorly, but Brazil specifically was the reason Emerging markets averages were worse. Again, there has been a bounce over the last three trading days.
Foreign funds that hedge currency exposure beat un-hedged foreign funds.
- Why? The dollar had modest relative strength in September largely due to the refugee crisis in Europe. However, the weak U.S. employment report on 10/2/2015 ended that.
Large company stocks out-performed midcap stocks, which in turn did better than small cap stocks.
- Why? There was a clear performance advantage for “risk off” industries like utilities and consumer staples.
Growth slightly under-performed value for the second month in a row, which became MORE pronounced after the unemployment report. A trend change could be at hand.
- Why? Health care led the way on the down side last month, hurting growth funds a lot more than value funds. Certain sectors that are more associated with the value side – energy, industrials, and financial services – have benefited from the flow of funds out of health care.
August’s S&P 500 low was re-visited in September, but that bottom held. See Chart 1. Investors have clearly been heartened by that fact. It has climbed above 2000 with impressive breadth, though only modest volume. Price action is now trading above its 50 day moving average. If it closes the week above 2000 the implication would be for a run back to the all-time highs above 2100. Note that the 2000 level was broken on September 16, and we actually hit 2028 intraday on the 17th, before a decisive fall. It can be dangerous to anticipate a trend change.
 Since the weak employment report on October 2nd, which effectively took Federal Reserve tightening off the table for the foreseeable future, low quality companies have done quite well.
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