Stocks reach all-time highs at home and abroad.

September was a strong month for stock markets both in the United States and abroad. Leading the domestic pack were small caps with the S&P 600 index returning an impressive +7.71%. Mid caps were up +3.92% and large caps rose +2.06%, as represented by the S&P 400 and S&P 500 indices. All three reached historical highs. International stocks had mixed results in September, with developed-market stocks (MSCI EAFE index) up +2.49% and emerging-market stocks (MSCI Emerging Markets index) ending the month down -0.40%. Both developed-market and emerging-market stocks reached new highs in September despite the retreat of emerging markets toward the end of the month. Bonds, meanwhile, fared less well. Interest rates rose over the month, which meant bond prices fell. The Bloomberg Barclays Aggregate index was down -0.48%. September was another month of relatively low volatility in the markets. The S&P 500 moved by more than 1% in one day just once, and it was an up day.

 

Positive economic news continued in September with steady economic growth, low inflation, and solid job growth. Confidence in the economy led the Federal Reserve to signal it would tighten monetary policy, as we discuss in this month’s sidebar. Expectations of an interest-rate hike in December also grew. Late in the month, President Trump unveiled his initial plans for tax reform. These plans included a large cut in corporate taxes. This led small-cap stocks to rise with the S&P 600 over +1.98% on Sept. 27.

Overseas, central banks signaled they also were also thinking about tightening monetary policy. The Bank of England strongly suggested it was considering an interest-rate increase and the European Central Bank indicated it may reduce or end quantitative easing (see sidebar) next month. The ongoing tension with North Korea didn’t affect markets substantially. By the end of the month, the U.S. dollar was slightly up against a basket of foreign currencies, stalling its decline over 2017.

 

 

What this means for you.

Stocks have higher expected growth than bonds over the long term, although they also have higher risk. This month, we saw strong stock returns. If your portfolio has higher risk — whether you’re far from retiring or you’ve told us you have a high risk tolerance — it will have had a positive month. While small caps had the highest returns, they will make up a small part of your portfolio relative to large-cap stocks. Likewise, emerging-markets stocks will account for much less of your portfolio than developed-market stocks. If you’re closer to retirement or you’ve told us you have less tolerance for risk, you’ll hold a lower percentage of your portfolio in stocks and it will not have seen the returns of higher-risk portfolios.

It’s important to make sure we know about your situation and how you feel about risk. Please contact an advisor or log on to your account to share this information anytime.

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