Despite a generally encouraging domestic backdrop for stocks, the S&P 500 fell approximately 1.4% in September. The third quarter, which featured more volatility than we have seen in several previous quarters, resulted in an overall modest gain of around 1% for the S&P 500.

As a result of improving economic data, several of the major investment firms, including Deutsche Bank, Citibank and Goldman Sachs, raised their 2014 year-end targets for the S&P 500. Among the reasons for optimism were:

  • an improving labor market, which saw jobless claims remain below 300,000
  • new home sales up 18%
  • Q2 GDP revised upward to 4.6%

Unfortunately, many investors will see more downside than upside on their September account statements. The end of September was very volatile, in large part due to the demonstrations in Hong Kong. At first glance, it might be difficult to see why the situation in Hong Kong would impact U.S. stocks, but the threat of potential economic sanctions on China and the possibility of China retaliating with economic sanctions of its own likely had a chilling effect on U.S. markets.

In addition to Hong Kong, a couple of key sectors in the U.S. markets — Energy and Utilities — had a rough month of September. Several broad energy indices were down over 7% for the month, while utilities were down over 2.5%.

Ultimately, we believe that there is much more positive than negative to take from September. The improving U.S. labor market should lead to even stronger consumer spending, which makes up more than 70% of the U.S. economy. Perhaps the key factor for October will be whether external factors, such as geopolitical concerns or fears about upcoming midterm elections, will keep buyers away. So far in October (admittedly only 1.5 hours into the first trading day of the month), it seems like there are more sellers than buyers. We anticipate that this would be a short term phenomenon, but it will be worth watching as we progress further into October.

Thanks for reading.

Carl Beck

October 1, 2014