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September Market Review Thumbnail

September Market Review

September was another challenging month for the stock market, as higher-than-expected inflation and geopolitical concerns put downward pressure on returns.  The S&P 500 declined 9.2% during the month, finishing near its June year-to-date lows.

During the month, the U.S. Bureau of Labor Statistics released new monthly CPI inflation data, which showed continued elevated inflation in important component areas like housing and food.  Because of this, and despite forward-looking indicators that suggest inflation will moderate in these areas over the coming year, the Federal Reserve took an aggressive approach and raised the Federal Funds rate another .75%.  The Federal Reserve now expects the Federal Funds rate to reach nearly 4.5% by the end of the year, a stark contrast from their January 2022 projection of 0.9%.

The Federal Reserve’s influence is not limited to the United States.  Rather, its impact reverberates throughout the world. Higher U.S. interest rates have strengthened the U.S. dollar, in turn decreasing the value of many foreign currencies and severely eroding their purchasing power.  Challenges in Europe are particularly acute, as currencies such as the British Pound and the Euro have lost more than 15% against the U.S. dollar this year.  This comes at an inopportune time, as the region’s energy costs are soaring due to Russian policy restricting energy supply into Europe. Interest rate and foreign currency movements have not historically been riveting subjects for investors, but their swift and sizable movements have been a major cause of volatility this year.

Entering the final quarter of the year, investors will pay close attention to the Federal Reserve and their plan to manage interest rates.  Any commentary that suggests a more moderating stance would be welcomed by investors.  In addition, the U.S. mid-term elections will occur in early November.  Historically, this presents an encouraging investment backdrop for the stock market.  The S&P 500 has seen a positive 1-year return in every post mid-term election period since 1942 (Strategas Research).

We continue to believe that maintaining a portfolio of high-quality stocks and bonds is paramount during times of market volatility.  We welcome the opportunity to discuss the economy, markets, or your portfolio with you at any time.

Important Disclosures:
Past Performance is no guarantee of future results. All investments carry some level of risk. The S&P 500 Index is an unmanaged, market capitalization weighted index of 500 common stocks widely regarded to be representative of the US market in general. Russell 2000® Index (U.S. Small Caps): Measures the performance of the 2,000 smallest companies in the Russell 3000®Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index. Russell Midcap® Index: Measures the performance of the 800 smallest companies of the Russell 1000® Index, which represents approximately 36% of the total capitalization of the Russell 1000® Index which is a mid‐cap index. MSCI EAFE Index: Measures the equity market performance of developed markets outside of the U.S. & Canada. MSCI EM Index: Captures large and mid cap representation across 24 Emerging Markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country. Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Indices are unmanaged and direct investment is not possible. The Bloomberg U.S. Intermediate Government/Credit Bond Index tracks the performance of intermediate term U.S. government and corporate bonds. Indices are unmanaged and direct investment is not possible. The opinions expressed are those of the author and not necessarily those of Robert W. Baird & Co. Incorporated. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM and CFP® in the U.S.