Anna Rathbun, Chief Investment Officer

Markets stumbled during September as concerns about slowing economic growth and the Chinese real estate giant Evergrande’s troubles seeped into the global sentiment. Investors focused on the pressures of supply chain issues that intensified across the world and weighed down business worries about meeting future demand. Price increases seem to be slowing but levels remain high, and the Fed signaled a more hawkish view in its September meeting while still describing the current inflation situation as “transitory.” In all, the prospect of tapering, the potential ripple effects of Evergrande’s financial woes, and general worries around the economic recovery weighed on the markets to end the third quarter.

Highlights

  • Pressures onglobal growth and challenges to the supply chains weighed on the markets tostart the month, and investors wrestled with the financial troubles of Chinesereal estate company Evergrande.
  • Globally exposedlarge cap equity led the losses in the U.S., as more domestically focused smallcompanies in the Russell 2000 Index lost less during the month.
  • As we head intothe fourth quarter, we may encounter more price volatility in the equitymarkets due to factors that include: more noise around the debt ceiling andspending packages from Washington, the lingering COVID-19 challenges, thestubborn supply chain issues, among others.
  • While valuationsremain high, the healthy corporate earnings momentum keeps the fundamentalsstable even with the anticipated volatility.
  • On theinternational front, our developed peers saw their equity markets also turnnegative for the month, but on local currency terms, the losses in the MSCIEAFE index were less pronounced than in the U.S.
  • In emergingmarkets, the vaccination progress is showing promise, but Chinese equities haveexerted significant downward pressure. Countries such as India and Russiaproved to be bright spots with a positive influence on the developing worldstock performance.
  • In the fixedincome markets, the upward shift of the U.S. Treasury curve resulted in anegative price change in the major fixed income indices. Despite the equitymarket turbulence, corporate credit markets remained robust. Ultimately, however, the duration-related challenges overwhelmedthe income generated in the investment grade and high yield indices, leavingboth categories with losses.
  • Overall, Septemberwas a month of broad losses in both equity and fixed income markets.

Looking Ahead

It seems that we have avoided a government shutdown with a fewhours to spare, but the fourth quarter of 2021 still holds some of the samechallenges as we saw during the last. The debt ceiling debate has only beenextended, COVID-19 and its Delta variant are still in our midst, and theinfrastructure bill and the $3.5 trillion economic package will continue to bediscussed for the next few months. Attached to this discussion is the tax hikeproposal, where if passed in its current form would mean an increase ofcorporate taxes to 26.5%. There is still much negotiation to be done evenwithin the Democratic party, and while there may be some compromise, we expectthe talks to be noisy on the way there. So, amidst high valuations anduncertainties ahead, there may be more turbulence as we head into the lastthree months of the year.


More Information

For more information on the September financial market activity, please contact CBIZ Investment Advisory Services.


The information included in this update is provided for informational purposes only and should not be construed as investment advice. The views expressed are those of the author based on the data available when this update was written and are subject to change based on market conditions or other factors. CBIZ Investment Advisory Services disclaims any liability for any direct or incidental loss incurred by applying information supplied in this update.

Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.

Published on October 01, 2021