Equity Overview

All the major indices lost ground in September and the downturn extended across all sectors except materials and utilities. The energy sector was the worst performer, down almost 16% for the month.

Small cap and midcap growth stocks outpaced their value counterparts, but large cap growth stocks lagged large cap value stocks.

Volatility returned to the markets, as 11 of 22 trading days generated swings greater than 1% in the S&P 500.

Macro Overview

Markets oscillated in September, reacting to each positive or negative prospect for a Covid-19 vaccine or additional economic stimulus legislation.  A resurgence of the virus in Europe added to the uncertainty.

Economic data reported in September was mixed.  Manufacturing showed expansion and home sales hit 14-year highs.  Durable goods orders and retail sales also rose, but less than expected.  The unemployment rate declined, but new claims for unemployment averaged about 800,000 per week, about 4x the pre-pandemic rate.  The economy has recovered only about half of the jobs lost in the spring and the rate of job creation appears to be slowing.

The Commerce Department issued its final estimate of second quarter GDP:  down 31.4% annualized, the largest contraction in 73 years.  By one estimate, 73,000 businesses have closed permanently during the pandemic.

Nonetheless, economic activity in the third quarter rebounded from its historically depressed level in the second quarter, largely as the result of extraordinary fiscal stimulus.  But that stimulus has run its course and Fed Chairman Powell urged the government to enact another package.  He said that without more help, “we’ll see sooner or later, probably sooner, that the economy has a hard time sustaining the growth that we’ve seen—that’s the risk.”