Market Recap:
Stocks moved higher in late September following the Fed’s decision to cut rates. The S&P 500 extended its rally, once again led by large-cap tech. market breadth has remained relatively stable with no major red flags for now. Commodities and metals remained firm, continuing their strength from earlier in the month.
International and emerging markets have also continued to outperform the U.S., a trend we’ve been discussing with clients all year. Valuations remain more attractive abroad, and many of these markets are well positioned to benefit from a variety of macro tail winds moving forward. As we frequently mention, the U.S. is due for a period of global equity underperformance which may already be underway.
What We’re Watching:
Outside of Q3 GDP coming in above expectations, economic data was broadly soft. Consumer sentiment continued to decline, and the September private payroll report from ADP came in at -32k, significantly missing the expected +54k increase. A weakening economy will likely trigger further rate cuts, which opens the door even wider for inflation to come roaring back.
We’ll continue to highlight the risk of stagflation in these updates, as we see it as the most serious macro threat on the horizon.
Chart of the Week:
This week’s chart shows the market cap weightings of three U.S. super sectors over time. You’ll notice that periods of extreme concentration in one sector have historically preceded sharp mean reversion events. We are now experiencing the most severe skew ever recorded.
