Monthly Market Update - September 2016

While the S&P 500 Index ended flat in September, U.S. small stocks were up 1.1% and international small stocks gained 2.7%. International large stocks also fared better with a 1.2% gain and emerging markets continued to rally, now up 16.0% year‐to‐date. Bonds were stable with returns mostly flat across the board. Commodities were the best performing asset class, up 3.1%, and REITs declined 1.2%.


  • The final estimate of second quarter real GDP growth came in at 1.4%, above the initial estimate of 0.8%. This increase continued to mirror positive contributions from personal consumption expenditures and exports.
  • The year‐over‐year inflation rate increased to 1.1% primarily due to increases in medical care and shelter.
  • The private sector added 156,000 jobs in September, missing expectations of 172,000. The unemployment rate ticked up to 5.0% as more workers entered the workforce and the labor force participation rate increased.
  • The Consumer Confidence Index pushed to new highs for the year and now stands at 104.1.


  • The S&P 500 Index was virtually flat and U.S. small stocks gained 1.1%. Energy was the top performing sector with a 3.1% return.
  • International large stocks were up 1.2% and international small stocks jumped 2.7%. All major developed market country returns were positive except Italy, down 2.6%.
  • Emerging markets had another solid month with a 1.3% gain, helped by a 2.5% gain from China’s stock market.


  • The 10‐year U.S. Treasury yield remained relatively unchanged at 1.6%.
  • Bonds were stable with most returns ending the month near flat. TIPS gained 0.5%.


  • Global REITs were down 1.2% and managed futures gained 0.5%.
  • Commodities jumped 3.1% on strong returns from energy and industrial metals.

Brexit Means Brexit...Right?
More than three months after British voters elected to extricate their economy from the European Union (EU), Brexit still hasn’t actually happened. So what’s going on?

Apparently nothing more than a careful process designed to minimize damage on both sides of the English Channel. British Prime Minister Theresa May recently announced a target of late first quarter 2017 as the time she and Parliament will finally pull the trigger and invoke Article 50 of the EU’s Lisbon Treaty.

When that happens, it will start two years of negotiations on exactly what the economic relationship between Britain and mainland Europe will become. At the same time, however, May says she plans to introduce “Great Repeal” legislation next year that will convert all existing EU laws into U.K. legislation. Parliament will also have to repeal the European Communities Act of 1972.

But will there actually BE a Brexit? A group of over 1,000 British barristers have signed a letter pointing out that the Brexit referendum was nonbinding, and that the prime minister cannot make such a significant decision without consulting Parliament. It’s possible that until Parliament affirms the extrication from the EU, it won’t legally take place. London’s High Court is expected to issue a ruling on Parliament’s role in Brexit on October 13, but an appeal is expected no matter what the ruling—sending the case to the U.K. Supreme Court to be heard in mid‐December.

It may be helpful to remember that May herself advocated remaining in the EU prior to assuming her current leadership position. There is speculation that her uncompromising timeline on Brexit is simply a way to reassure voters that she has heard their message. Then she can work for a so‐called “soft Brexit,” where the country will control its borders via liberal work quotas, and there will be little changed in terms of trade and finance.

Meanwhile, despite the dire predictions, there has been no British recession as a result of the unexpected vote, and little has changed in regard to London’s status as Europe’s leading financial center.

Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar Direct, Standard and Poor's, Wells Fargo, Yahoo! Finance, BofA Merrill Lynch, Bob Veres, Bloomberg, Financial Times, Reuters

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