September is in the books, and it was historically strong on the monitor. Are Markets likely to continue this trend?

Fixed Income                      2-Yr Treas Yield 3.66% | 10-Yr Treas. Yield 3.81%

The difference between the beginning and the end of the month does not tell the entire fixed income picture. Yields across the curve fell for the month, but the first Federal Reserve Board (FRB) cut caused a wild ride. The Investment grade and High Yield markets also benefited from the FRB cut. This first cut is just that, the first of many. The expectation is for further cuts in November and December, with a slower pace throughout 2025. The all-important relationship between 2-year bonds and 10-year bonds returned to a normalized curve. This typically only occurs as a result of a recession. The FRB is likely ready to celebrate the successful ‘soft landing’ however, don’t pop the champagne just yet. We need to see inflation reach and sustain a 2% level for the FRB to continue the path of cuts. That being said, their preferred gauge for inflation, PCE, came in at 2.2% for August, so it is promising.

Equities                Dow Jones 1.85% | S&P 500 2.02% | NASDAQ 2.68%

This last month provided us something we have not seen from a September since 2019… A profit! After stumbling out the gates on bad jobs data, markets rebounded in preparation for an FRB rate cutting cycle. The move on markets to the north came as interest rates were cut by 0.50%. The optimism was a fantastic boost to the markets, which have, as of late, struggled to find that optimism.

Conclusion

Equities and fixed income alike found their way higher in September. As mentioned, this has not been done since 2019. 2020 and 2022 were justified in running negative, but 2021 and 2023 were strong years that found their ways lower. The rebound during the month is a testament to how meaningful the FRB’s 0.50% rate cut really was.

A Look Ahead…

Future cuts are projected to lead us 1+% lower, the momentum should pay off in the intermediate term (12 months). The short run (1-3 months) outlook is likely a different story. Equity valuations are about 19% rich from a historical standpoint. The last correction to markets ended on 10/27/2023, making us ripe for the next one. Lastly, headline risks appear to be mounting. These factors make us caution in the short-term while being optimistic about the intermediate term outlook.

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