This market update highlights key developments across equities, fixed income, and the broader economic landscape.
Equities – A Flat Headline with Wide Gaps Underneath
The S&P 500 returned -0.35% in September. That small number hides a wide split. Technology was the only sector to gain, rising about 5% on continued strength in artificial intelligence spending. Financials, materials, and real estate each fell about 7% as oil prices and interest rates rose. The Nasdaq gained 1.9% for the month. The Dow fell 4.3%. Smaller companies had a harder month. The Russell 2000 returned -5.25%, since smaller firms rely more on borrowing and feel higher rates sooner. Overseas results were also weaker. Developed international markets (MSCI EAFE) returned -3.00%, and emerging markets returned -0.65%. The MSCI ACWI, which tracks stocks across the globe, returned -1.09%. For the third quarter as a whole, U.S. large company stocks still finished higher.
Spotlight: Chip Earnings Keep Delivering – Micron’s Record Quarter Confirmed the Demand Behind Technology’s Lead
Technology held up in a difficult month for one reason: earnings. Micron reported its fiscal fourth quarter after the close on September 30. Revenue was $54.23 billion. That is up from $41.46 billion the prior quarter and $11.32 billion a year ago, and it came in above the roughly $50 billion the company had guided to. The results confirm what we have described all year. Demand for the memory used in artificial intelligence systems still exceeds supply, and the companies that make it are earning record profits. Nvidia, the other anchor of this theme, gained about 17% over the third quarter.
Bonds – Yields Reached Their Highest Levels Since 2007
September was a hard month for bonds. The 10-year Treasury yield rose from 4.75% to 5.28%, its highest level since 2007. The 2-year yield rose from 4.34% to 4.89%. The longer yield sits 39 basis points above the shorter one. When yields rise, existing bond prices fall, and the Bloomberg U.S. Aggregate Bond Index returned -2.61% for the month. Three things pushed yields higher: the Fed’s rate increase, oil prices back above $100 per barrel for part of the month, and stronger economic data. The Treasury began its expanded buyback operations for longer bonds on September 9, but those purchases were small next to these forces. The decline is uncomfortable, but it has a clear upside. High-quality bonds now pay more than they have in nearly two decades. Investors who buy or reinvest at these levels lock in that income for years.
The Federal Reserve – The Rate Increase We Flagged in August Arrived
On September 16 the Federal Reserve raised its key rate by 0.25 percentage points to a range of 3.75% to 4.00%. The vote was 12-0. It was the first increase since July 2023. The Fed’s projections show most officials expect one more increase before year end, with the median rate at 4.1%. In our August letter we said a surprise increase of 25 to 50 basis points this year was a real possibility. The first 25 basis points is now done. We also said a decisive Fed should bring longer-term yields down over time. That has not happened yet. Long yields rose through most of the month on oil prices and strong data. Our view is unchanged. As confidence grows that inflation is under control, we expect yields on bonds of ten years and longer to fall. The softer inflation report at month end was a first step: odds of another increase in October dropped to about 35%. The next Fed meeting is October 27 to 28. In Japan, the Bank of Japan raised its rate to 1.25% on September 18, its highest level since 1995. The yen still weakened past 157 per dollar, because the gap between U.S. and Japanese rates remains wide.
The Economy and Global Events – New Orders Point to Continued Growth
The economic data in September showed an economy with real momentum. Employers added 162,000 jobs in August, about three times the forecast. Consumer prices rose 3.4% over the past year, in line with expectations. The Fed’s preferred inflation gauge, released September 30, also showed 3.4% and came in below forecasts. The most useful forward signal came from new orders. New orders measure what businesses expect to sell in the months ahead, so they tend to lead actual activity. In the Institute for Supply Management’s August surveys, the services new orders index rose to 60.9, its highest reading since February 2023. The manufacturing new orders index came in at 53.7. That is down from July, but it marked the eighth straight month of growth after a long stretch of contraction. Any reading above 50 signals growth. Together these readings suggest demand remains healthy heading into the fourth quarter. In energy markets, renewed fighting between the U.S. and Iran pushed Brent crude above $100 per barrel in mid-September before prices eased later in the month. We continue to expect the conflict to move toward resolution over time.
Bottom Line – A Hawkish Fed, Higher Income, and Earnings Still in Charge
September tested both stocks and bonds. The Fed raised rates, long-term yields hit levels last seen in 2007, and most sectors outside technology fell. Underneath, the picture is sound. Job growth rebounded, new orders point to continued expansion, and the strongest companies keep reporting record earnings. Bonds took a loss this month, but they now offer the best income in nearly twenty years. We expect longer-term yields to come down as inflation confidence builds, which would lift bond prices. Our approach is unchanged: quality companies, broad diversification, and high-quality bonds that pay real income. We are watching the October Fed meeting, the September jobs and inflation reports, and third quarter earnings season.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.