S&P 500 Posts Best September in a Decade: Key Insights for Savvy Investors
September Surge: S&P 500 Gains 2.1%, Best Performance Since 2013
In September, the S&P 500 achieved a remarkable 2.1% total return, its strongest performance for the month since 2013 and its first positive September in five years, according to a recent Bank of America report. This marks the fifth consecutive month of gains and the 10th positive month out of the last 11.
Interest Rates and Asset Class Performance
Lower interest rates were a significant driver behind the gains across all major asset classes. Gold led the pack with a 4.6% increase. Long-term Treasuries outperformed stocks, rising by 2.4%, while investment-grade corporate bonds climbed by 1.9%, and cash saw a modest gain of 0.4%.
International Equities and Currency Impact
International equities lagged behind the S&P 500 in local currency terms (+1.6%) but outpaced it in USD terms (+2.7%) due to a weakening dollar. The MSCI Emerging Markets Index saw a robust 6.4% gain in USD terms, propelled by China's impressive 23.5% surge—its second-best monthly return in history, BofA notes.
Quarterly Performance Highlights
In the third quarter, the S&P 500 rose by 5.5%, its best Q3 performance since 2020. The real momentum, however, was within the market, with the S&P 500 Pure Value Index (SPW) jumping 9.4%, its best Q3 since 2010. Notably, 67% of S&P 500 stocks outperformed the index in Q3, placing this breadth in the 98th percentile historically.
Sector Analysis: Winners and Losers
Energy was the only sector to decline, falling by 3.1%, as WTI oil dropped 12.5%. Despite weak fundamentals, BofA’s commodity strategists noted that oil positioning had fallen to its lowest levels since at least 2011.
Rate-sensitive sectors emerged as the biggest winners, led by Utilities (+18.5%) and Real Estate (+16.3%). Industrials (+11.2%) and Financials (+10.2%) also posted strong gains.
Growth vs. Value Dynamics
The Russell 1000 Growth Index (+2.8%) outperformed the Value Index (+1.4%) in September. However, for the third quarter, Value outpaced Growth (+9.4% vs. +3.2%) for the first time since Q4 2022.
Small Caps vs. Mid-Caps
Despite the Federal Reserve’s 50 basis-point cut, small caps lagged behind the Russell 1000 in September but led for the quarter due to a strong July rally. BofA strategists remain tactically cautious on small caps, favoring mid-caps, which outperformed both size segments last month after a middle-of-the-pack performance in Q3. Historically, mid-caps have led small caps during "Downturn" phases and following the start of Fed cuts.
Analysis for Everyday Investors
For the everyday investor, this article highlights several key points:
- S&P 500’s Strong Performance: September was a standout month for the S&P 500, indicating positive market sentiment.
- Interest Rate Impact: Lower interest rates benefited all major asset classes, with significant gains in gold and Treasuries.
- Currency Effects: A weaker dollar helped international equities outperform in USD terms.
- Sector Winners: Rate-sensitive sectors like Utilities and Real Estate were the biggest winners, suggesting these may be areas to watch.
- Growth vs. Value: While growth stocks did well in September, value stocks outperformed in the third quarter, indicating a possible shift in market preferences.
- Small Caps vs. Mid-Caps: Mid-caps are currently favored over small caps due to better performance trends and market conditions.
Understanding these dynamics can help you make more informed investment decisions, potentially enhancing your portfolio's performance. Keep an eye on interest rate trends, sector performances, and the ongoing growth vs. value debate to navigate the financial markets more effectively.
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By breaking down these complex financial concepts, even those new to investing can grasp how market movements and sector performances can impact their portfolios. This knowledge empowers you to make more strategic investment decisions, ensuring your financial future is both secure and prosperous.