Financial Market Roundup
Produced by Fifth Third's Investment Management Group

In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of September.

GLOBAL
TRENDS

Yellow Arrow Pointing Right - Neutral

The COVID-19 pandemic has continued to have a major impact on life across the globe, and therefore economic activity, employment, and corporate earnings. Governments around the world are mixed on COVID-19 related guidelines as global cases mounted in September. While the threat of COVID-19 variants continues, vaccines appear to provide a level of protection that mitigates the most severe economic risks. In September, substantial progress was made towards COVID-19 vaccine booster shots, now approved for certain individuals. Over 55% of the total U.S. population was fully vaccinated as of September 30. Despite higher delta-related cases, we don’t expect draconian lockdown measures, which would allow economic growth to continue. Lingering COVID-19 economic restrictions, vaccine distribution and administration data, government fiscal stimulus measures, central bank policy actions, geopolitical tensions, and inflation measures are topics that the Investment Management Group is monitoring.

CENTRAL BANK
POLICIES

Green Arrow Pointing Up - Positive

Global central banks continued to support the global economy by maintaining low interest rates and implementing programs to increase market liquidity in response to the uptick in COVID-19 delta variant worries. The Federal Reserve held rates steady at its September meeting and officials expect rates to be on hold for the time being. Officials signaled that the pace of the economic recovery in the U.S. may warrant a reduction in policy support in the fourth quarter of this year as Chair Jerome Powell expects asset purchase tapering to begin in November. The central bank remains committed to using its full range of tools to continue to provide support for the recovery and will not act impulsively. The European Central Bank (ECB) left rates unchanged in September and remains committed to supporting the region’s economy. The Bank of Japan (BOJ) maintained monetary policy settings at its latest meeting and maintained its economic growth forecast.

EQUITY
PERFORMANCE

Red Arrow Pointing Down - Negative

Global equities were negative in September as investors struggled to find momentum throughout the notoriously sluggish month. The S&P 500 Index was lower for the first time in seven months, recording a loss of 4.7% in total return. The blue-chip Dow Jones Industrial Average lost 4.2% while the tech-heavy NASDAQ Composite tumbled 5.3% for September. The MSCI All Country World Index of developing and developed market stocks dipped 3.5% in total return in September. Emerging market stocks underperformed international developed stocks, with the MSCI Emerging Markets Index falling 4.1% and the MSCI EAFE Index of developed international equities fell 2.8% in total return in September.

INTEREST RATES
AND GROWTH

Green Arrow Pointing Up - Positive

Yields rose in September. The yield on the benchmark 10-year U.S. Treasury rose 19 basis points in September to end the month at 1.5% and is now 59 basis points higher than at year-end 2020. Rates retraced some of their recent decline. The U.S. economy expanded at an annualized 6.7% rate in the second quarter, according to data from the Bureau of Economic Analysis. Personal consumption, the largest contribution to GDP, increased at an annualized rate of 12.0%, one of the largest gains in decades. Economists currently expect growth to progress as the U.S. economy continues to reopen, though perhaps at a slower rate than previously expected given developments in COVID-19.

POLITICAL AND
REGULATORY TRENDS

Yellow Arrow Pointing Right - Neutral

With only hours to spare on the last day of September, President Biden signed-off on a bill that will fund the government through early December, avoiding a shutdown. Lawmakers will still have to address the concerns surrounding the debt ceiling. Congress continues to deliberate over the infrastructure deal as both Democrats and Republicans are struggling to come to an agreement. The bipartisan infrastructure plan would contribute to improvement of roads, bridges, public transit, airports, power infrastructure and more. This initiative is expected to be funded through closing the tax gap, redirecting unused relief funds, targeting corporate user fees and macroeconomic impact of infrastructure investments. The infrastructure plan along with a different party-line reconciliation bill targets tax increases and social spending which would impact lower income individuals and focus on social purposes.

INVESTMENT
TRENDS

Yellow Arrow Pointing Right - Neutral

Inflation concerns continued to dominate investment themes in September, amid disrupted supply chains, energy shortages and a tightening labor market, with market participants debating whether inflationary factors will prove transitory. Fed Chair Jerome Powell reiterated that elevated inflation is likely due to transitory factors. Vaccine distribution continues amidst a surge in COVID-19 cases in the United States and central banks and governments continue to offer monetary and fiscal stimulus; the combination of which has lowered overall economic and financial market uncertainty. While markets are feeding off massive fiscal stimulus and indicators of improving economic data, some areas of the economy, particularly industries with supply chain worries, remained depressed in September. Investors remain optimistic about the economic recovery amid strong efforts that both governments and pharmaceutical companies have put into a vaccine to halt the spread of COVID-19.