Markets & Economy

Monthly Market Review

September 2019
T. Rowe Price

Early gains pushed the major benchmarks higher in September. The first half of the month saw a notable rotation into slower‑growing value stocks at the expense of highly valued growth shares. Small‑cap stocks also outperformed large‑caps early on, although they surrendered leadership late in the month. Within the large‑cap S&P 500 Index, financials outperformed, helped by a rise in longer‑term interest rates, which boosts banks’ lending margins. The defensive utilities sector outperformed, and energy shares were also strong after crude prices jumped in the aftermath of a mid‑month attack on Saudi Arabian oil production facilities. The health care sector recorded a modest decline as managed care and pharmaceutical companies fell victim to growing worries over government intervention in the health care market.

Reflecting some increased skepticism about growth stock valuations, perhaps, the month was also notable for the weak reception given to planned initial public offerings (IPOs) by so‑called “unicorns”—technology‑related companies with private valuations of more than USD 1 billion. Office hosting company WeWork and sports marketing company Endeavor pulled their IPOs, and shares in networked fitness equipment maker Peloton experienced the second‑worst first day of trading of any IPO this year.

Trade Remains at Forefront

The trade dispute with China remained at center stage for much of the month. The S&P 500 recorded its best daily gain on September 5 after news broke that Chinese and U.S. negotiators were preparing to meet in Washington in early October—later than originally scheduled, but a relief to many who worried that the talks might be canceled altogether. A series of conciliatory gestures from both sides further supported sentiment. On September 11, Chinese officials revealed a small list of U.S. products that would be exempt from new tariffs that were scheduled to take effect on September 17. President Donald Trump quickly responded by tweeting that the U.S. would postpone a 5% increase on USD 250 billion of imports from China from October 1 to October 15, citing a desire not to interfere with the People’s Republic of China’s 70th anniversary celebration on the prior date.

Mixed signals on trade caused some volatility late in the month, however. Stocks surrendered an early rally on September 24, after President Trump renewed his criticism of China in a speech before the United Nations, accusing it of “the theft of intellectual property and also trade secrets on a grand scale” while promising that he would “not accept a bad deal.” The president calmed fears the following day by telling reporters that a deal with China might happen “sooner than you think,” but markets were unsettled again by reports two days later that the White House was considering restricting U.S. investment in China and forcing U.S. exchanges to delist the shares (in the form of American depositary receipts) of Chinese companies. On the final day of the month, stocks rose again after a White House trade adviser called the rumored capital restrictions “fake news.”

U.S. Indexes
Total Returns

 

September

Year-to-Date

Dow Jones Industrial Average

2.05%

17.51%

S&P 500 Index

1.87 20.55

Nasdaq Composite Index

0.46

20.56

S&P MidCap 400 Index

3.06

17.87

Russell 2000 Index

2.08

14.18

Past performance is not a reliable indicator of future performance.
Note: Returns are for the periods ended September 30, 2019. The returns include dividends based on data supplied by third‑party provider RIMES and compiled by T. Rowe Price, except for the Nasdaq Composite Index, whose return is principal only.
Sources: Standard & Poor’s, LSE Group. See Additional Disclosures.

Manufacturing Sector Contracts; Consumers Grow More Cautious

Investors also kept a close eye on signs that U.S. growth might be slowing, due in part to pressures from the trade war. The evidence was mixed. Stocks fell on the first trading day of the month on news that the Institute for Supply Management’s gauge of manufacturing activity had moved into contraction territory for the first time since 2016. Non‑defense durable goods orders also missed expectations and fell in August, indicating a continued decline in business investment.

The consumer appeared to be in much better shape, but some early warning signs may have emerged here as well. August payroll gains disappointed, especially when stripping out temporary hiring related to the U.S. census. Retail sales in August rose a healthy 0.4% for the month, although a jump in volatile auto sales deserved the credit. Meanwhile, signs emerged of growing consumer caution. The Conference Board’s consumer confidence index fell much more than expected—albeit from very high levels—with researchers citing fears over rising trade tensions and tariffs. Personal spending in August rose only 0.1%, its slowest pace since February and well below the 0.4% gain in personal incomes.

Recession Still Appears Unlikely, but Selectivity Will Be Key for Investors

Following the end of September, further signs of weakness have emerged, particularly in the manufacturing sector. Opinions among T. Rowe Price investment professionals vary, but many believe that the U.S. economy will avoid falling into recession in the coming months. Importantly, no major signs of excess have emerged, as was dramatically the case with the housing bubble on the eve of the Great Recession a decade ago. Indeed, consumer finances are generally in solid shape, and corporate debt levels remain manageable. Nevertheless, selectivity will be key for investors in a slowing growth environment. Earnings gains are likely to be harder to come by as exporters, in particular, wrestle with trade tensions and weakness in many overseas economies.

Additional Disclosures
Copyright 2019 FactSet. All Rights Reserved.

J.P. Morgan. Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

The S&P 500 Index and S&P MidCap 400 Index are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and have been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index and S&P MidCap 400 Index.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

Developed non‑U.S. equity markets rose in September, supported by expectations for further monetary easing and fiscal spending, a de‑escalation of trade tensions between the U.S. and China, and increased hopes that the UK will not leave the European Union (EU) without an exit deal.

The MSCI EAFE Index, which measures the performance of stocks in Europe, Australasia, and the Far East, returned 2.92%. Within the index, 10 sectors advanced, led by gains in financials and energy; only consumer staples declined. Value stocks in the EAFE index rose 4.90%, outperforming growth shares, which returned 1.17%. Hong Kong was the only developed Asian market to decline, as demonstrations for reform persisted.

European Stocks Buoyed by Looser Monetary Policy

European equities rose in September, as new central bank stimulus measures and hopes for a Brexit deal overshadowed concerns about slowing economic growth across the region. 

International Indexes
Total Returns

MSCI Indexes

September

Year-to-Date

EAFE (Europe, Australasia, Far East)

2.92%

13.35%

All Country World ex-U.S.A.

2.62

12.06

Europe

2.74

14.41

Japan

4.20

11.52

All Country Asia ex-Japan

1.69

 5.96

EM (Emerging Markets)

1.94

 6.22

Past performance is not a reliable indicator of future performance.
All data are in U.S. dollars and represent gross returns as of September 30, 2019.
This table is shown for illustrative purposes only and does not represent the performance of any specific security.
Source: MSCI. See Additional Disclosures.

ECB Loosens Policy; European Leaders Call for Fiscal Measures

The European Central Bank (ECB) cut its deposit rate by 10 basis points and relaunched its quantitative easing program, saying that it would purchase EUR 20 billion of securities every month beginning November 1. Departing ECB President Mario Draghi said that the bank made the move mainly because the region’s underlying rate of inflation has been persistently and significantly below target for the past five years. Draghi also noted that ongoing global trade tensions and Brexit concerns had increased risks to the eurozone and that some of these risks had not been taken into account in the latest policy decision. Meanwhile, European leaders stepped up calls for governments to fill in the gaps to boost the economies of the region. Incoming ECB President Christine Lagarde has asked European governments with the fiscal means to do so to support the economy through increased spending and tax cuts.

UK Markets Gain as Hopes Rise for Brexit Deal

The British pound rose 1.19% versus the U.S. dollar and UK stocks gained 4.17% in dollar terms as hopes for a Brexit deal rose. Prime Minister Boris Johnson suffered a series of setbacks to his bid to take the UK out of the EU by October 31. Not only did Parliament vote to force him to seek a Brexit extension from the EU to avoid a no‑deal Brexit, but the UK’s highest court ruled that Johnson’s suspension of Parliament was illegal. As opposition mounts, the possibility of a no‑deal Brexit has fallen notes T. Rowe Price Fixed Income Portfolio Manager Quentin Fitzsimmons, who believes that there is a 55% chance of a no‑deal Brexit, a 35% chance of a further extension to Article 50, and a 10% chance that Parliament approves a modified version of Theresa May’s withdrawal agreement. He also thinks the odds of an election before year‑end are very high as Johnson now faces calls to resign, and after so many defections, his Conservative Party no longer holds a majority in Parliament.

BoE Holds Rates Steady, but Expectations for Rate Cut Rise

The Bank of England (BoE) held short‑term interest rates steady, but expectations grew that it will cut rates as early as November even if a Brexit deal is reached. BoE policymaker Michael Saunders signaled that a cut may be under consideration, noting that Brexit uncertainty is acting like a brake on the UK economy. T. Rowe Price Economist Tomasz Wieladek agrees and expects the bank to cut rates up to two times, especially if the persistent uncertainty about the Brexit outcome leads the services sector of the economy to begin contracting following the pervasive weakness in the manufacturing and construction sectors. The BoE cut its third‑quarter growth forecast to 0.2% from 0.3%. In his worst‑case scenario, BoE Governor Mark Carney said a no‑deal Brexit would reduce the size of the economy by 5.5% in the medium term, increase the level of unemployment, and double the rate of inflation.

Wieladek: Germany Is in a Manufacturing Recession

Economic data in Germany continued to underline the toll that trade tensions, pressures in the automobile industry, the slowdown in China, and Brexit uncertainly are having on Europe’s largest economy. Wieladek said the risks have intensified and helped push Germany into a manufacturing recession. In September, German factories recorded their worst performance since 2009, and job losses in the manufacturing sector spread. Whether this recession becomes more pervasive depends on how well the services sector holds up. Wieladek notes that services in the most recent purchasing managers indexes continued to expand, but at a slower pace. The German Ifo Institute cut its forecast for German economic growth this year to 0.5% from 0.6% and lowered its estimate for next year to 1.2% from 1.7%. The institute has also warned that a sharp slowdown in manufacturing could spread to the services sector and cause an increase in unemployment.

Japanese Equities Outperform Many Developed Market Peers

Stocks in Japan rose and outperformed many of their developed market peers. The Japanese yen fell 1.79% against the U.S. dollar—which is favorable for firms that export to the U.S. but reduces local stock returns in dollar terms. While the U.S.‑China trade dispute continued to take its toll on the trade‑dependent Japanese economy, stocks got a boost after the Federal Reserve (Fed) cut rates and as hopes increased that the Bank of Japan would follow suit and ease policy in October in an effort to stimulate the economy. 

Emerging Markets Buoyed by Looser Monetary Policy

Stocks in emerging markets rose as several central banks loosened monetary policy to spur growth. Emerging European markets led the gains, thanks in part to a 12% rise in Turkish stocks, which benefited when the Turkish central bank cut its key lending rate more than expected. Latin American stocks also rose, buoyed to some degree by gains in Brazilian stocks and an 8.50% rally in Argentine equities, which plunged 50% last month. The Argentine peso also advanced 2.64% against the U.S. dollar after the country imposed currency controls at the beginning of the month.

Outlook: Global Growth Is Beginning to Slowly Improve

Significant moves by global central banks to loosen monetary policy have eased financial conditions, which is supportive of global economic activity. Indeed, the most recent global manufacturing purchasing managers’ surveys suggest that activity may have turned recently, especially outside of Europe. Even so, many global economies continue to weaken as a result of an adverse combination of ongoing trade tensions, slowing Chinese demand, and geopolitical disruptions, including Brexit, protests in Hong Kong, a mid‑September drone attack on major Saudi oil facilities, and an impeachment inquiry in the U.S. Indeed, the most recent manufacturing surveys show some of the weakest activity since 2009.

Additional Disclosures
MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

Longer‑term Treasury yields increased in September as positive economic and trade news dampened investor enthusiasm for lower‑risk assets such as U.S. government bonds. Although sentiment waned later in the month, the overall tone was positive enough to reverse some of the steep drop in Treasury yields that occurred in August. (Bond prices and yields move in opposite directions.)

Conciliatory Trade Gestures Help Send Treasury Yields Higher

After starting the month at 1.50%, the yield of the 10‑year U.S. Treasury note, which serves as a benchmark for many key lending rates, rose to 1.90% by September 13—its highest level since the beginning of August—but settled at 1.68% by month‑end. The 30‑year Treasury bond yield increased to 2.12% from a record‑setting low of 1.94% reached near the end of August.

Conciliatory gestures from both sides of the U.S.‑China trade dispute in the first half of the month helped ease market concerns about the impact that tariffs could have on long‑term economic growth and led investors to rotate out of Treasuries and into riskier assets. However, geopolitical and economic worries moved to the forefront again in the second half of the month, renewing demand for Treasuries. A drone attack on Saudi Arabian oil facilities on September 14 and concerns about further conflict in the region were notable in changing investor sentiment.

Total Returns

Index

September

Year-to-Date

 

Bloomberg Barclays U.S. Aggregate Bond Index

-0.53%

 8.52%

 

J.P. Morgan Global High Yield Index

 0.56

11.27

 

Bloomberg Barclays Municipal Bond Index

‑0.80

 6.75

 

Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index

‑1.42

 4.38

 

J.P. Morgan Emerging Markets Bond Index Global Diversified

‑0.46

12.99

 

Bloomberg Barclays U.S. Mortgage Backed Securities Index

 0.07

 5.60

 

Past performance is not a reliable indicator of future performance.
Figures as of September 30, 2019. This table is shown for illustrative purposes only and does not represent the performance of any specific security.
Sources: RIMES, as of September 30, 2019; Bloomberg Index Services Limited, J.P. Morgan. See Additional Disclosures.

Overnight Lending Rates Surge

Spikes in overnight lending rates, a usually obscure part of the fixed income market, may have further contributed to the flight to quality later in the month. The yield offered by repurchase agreements (repos) rose as high as 10%, and the “effective” federal funds rate briefly exceeded the top of the Federal Reserve’s target range before the central bank acted to return liquidity to the market and drive short‑term yields back down to more normal levels. T. Rowe Price analysts believe quarterly corporate tax payments that were due in mid‑September temporarily removed liquidity from a system that was already dealing with the Fed’s shrinking balance sheet and other technical factors.

U.S. Treasury Yields

Maturity

August 31

September 30

3-Month

1.99%

1.88%

6-Month

1.89

1.83

2-Year

1.50

1.63

5-Year

1.39

1.55

10-Year

1.50

1.68

30-Year 1.96 2.12

Source: Federal Reserve Board.

Global Growth Concerns Prompt Another Fed Rate Cut

As expected, the Fed announced its second rate cut of the year after its September 17–18 meeting. The quarter‑point cut followed an adjustment of the same size in late July and moved the fed funds rate to a target range of 1.75% to 2.00%. As in July, the Fed’s statement cited concerns about slowing global growth and low inflation as the reasons for loosening monetary policy. Fed Chairman Jerome Powell provided little guidance about the central bank’s next move at his post‑meeting news conference, but based on futures prices at month‑end, the market is expecting another quarter‑point rate cut by December.

The yield curve steepened for the month as yields of shorter‑maturity Treasuries either declined or increased less than longer‑term yields. The short end of the Treasury curve is more closely tied to monetary policy expectations, while longer maturities are influenced by growth and inflation forecasts.  

Mortgage‑Backed Securities Outperform Other Investment‑Grade Sectors

Rising Treasury yields generally weighed on returns within the Bloomberg Barclays U.S. Aggregate Bond Index, a measure of investment‑grade taxable bonds. Mortgage‑backed securities held up relatively well as higher yields mitigated prepayment risk and strong housing market data provided support. Investment‑grade corporate bonds lost ground but performed better than Treasuries. Heavy new issuance—including a record‑setting week at the start of the month—was easily digested by strong demand. Treasury inflation protected securities underperformed nominal Treasuries as a mid‑September increase in inflation expectations proved transitory.

Municipal bonds produced negative results but narrowly outperformed Treasuries. The sector faced relatively heavy supply, but demand for tax‑free income remained strong. High yield Puerto Rico debt continued a robust year‑to‑date rally as the commonwealth’s financial oversight board approved a debt restructuring plan.

High Yield Bonds Benefit From Risk‑On Environment

High yield corporate bonds benefited from the risk‑on environment and investor demand for higher yields, but T. Rowe Price traders noted that issuers that showed any weakness in their credit stories were quickly penalized by the market. For the year‑to‑date period, the below investment‑grade debt market has been highly bifurcated, with higher‑rated bonds outperforming the lowest‑quality debt. Floating rate loans were also positive but underperformed high yield bonds.

European Central Bank Relaunches Quantitative Easing

In an effort to spur growth and lift below‑target inflation, the European Central Bank (ECB) cut its benchmark rate from ‑0.4% to ‑0.5% at its September meeting. The ECB also relaunched its quantitative easing program, saying that it would purchase 20 billion euros of securities every month beginning November 1. Central banks in Japan and the United Kingdom kept short‑term rates unchanged at their September meetings. Norway stood out as one of the few nations that continue to tighten monetary policy. The country’s central bank raised its key rate for the third time this year amid solid growth and close‑to‑target inflation.

German and Japanese 10‑year government bond yields finished the month slightly higher but remained in negative territory. The yield of the 10‑year UK sovereign bond was little changed amid continuing uncertainty over Brexit. A strengthening U.S. dollar weighed on returns of many bonds denominated in local currencies.

Emerging Markets Bonds See Strong Demand

Bonds in developing markets continued to see strong demand as a slew of central banks—including Brazil, Indonesia, and Russia—cut lending rates to address growth concerns. Argentina continued to deal with the fallout from challenger Alberto Fernández’s strong showing in August’s presidential primary. President Mauricio Macri imposed capital controls to prop up the collapsing peso and retain shrinking foreign currency reserves.

Outlook: Dollar Resilient as U.S. Economy Remains Relatively Strong

The U.S. dollar has been resilient this year despite the slowing U.S. economy. Quentin Fitzsimmons, a T. Rowe Price fixed income portfolio manager, says that this is because the strength of the U.S. economy relative to other countries influences the currency more than U.S. growth per se—and in 2019, European growth has disappointed more than U.S. growth. Most notably, in Germany—Europe’s largest economy—the manufacturing sector is suffering a recession as trade tensions weigh on export demand. According to Fitzsimmons, it is difficult to see how the dollar can significantly weaken against the euro unless the differential between the two major economies reverses.

Additional Disclosures
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

GLOBAL CAPITAL MARKETS ENVIRONMENT

Major U.S. stock indexes advanced in September, as some conciliatory trade‑related gestures from U.S. and Chinese officials helped ease tensions. For example, Chinese officials exempted certain products from new tariffs that were scheduled to take effect on September 17. The exemption will last for one year. U.S. President Donald Trump quickly responded that the U.S. would postpone a 5% increase on USD 250 billion of imports on China from October 1—the People’s Republic of China’s 70th anniversary—to October 15. China then took an even larger step toward de‑escalation by excluding soybeans and other U.S. farm products from further tariffs, while officials claimed that they would also encourage Chinese companies to buy U.S. farm products. While some rhetoric from U.S. and Chinese officials was discouraging, investors remained optimistic that the resumption of trade negotiations in October would lead to some tangible progress toward a trade deal.

Monetary policy expectations were also a major driver of market sentiment, as the Federal Reserve reduced short‑term interest rates at mid‑month, while other central banks around the world took measures to stimulate economic growth. The U.S. equity market seemed largely unaffected by the late‑month opening of a House of Representatives impeachment inquiry regarding President Trump’s alleged pressuring of Ukraine’s leader to investigate former Vice President Joe Biden and his son.

Mid‑cap shares outperformed small‑ and large‑caps. The S&P MidCap 400 Index returned 3.06% versus 2.08% for the small‑cap Russell 2000 Index and 1.87% for the large‑cap S&P 500 Index. As measured by various Russell indexes, value stocks decisively outperformed growth across all market capitalizations. Starting in late August, small‑cap and value stocks—which have significantly underperformed large‑cap and growth stocks, respectively, thus far in 2019—rallied sharply and reduced the magnitude of their year‑to‑date underperformance.

U.S. Stock Returns
  S&P 500 Index S&P MidCap 400 Index Russell 2000 Index

September

 1.87%

 3.06%

 2.08%

Year-to-Date

20.55

17.87

14.18

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; Standard & Poor’s, LSE Group. See Additional Disclosures.

In the large‑cap universe, as measured by the S&P 500 Index, sector performance was mostly positive. Financials stocks performed best, helped by a sharp rebound in long‑term interest rates that should enable banks to make more profitable loans. Utilities stocks, which tend to have above‑average dividend yields, also did well despite the backup in rates. Energy shares advanced as some investors rotated away from growth stocks to undervalued stocks that have lagged. Energy stocks also benefited from a sharp oil price spike stemming from a drone and missile attack against certain oil facilities in Saudi Arabia. The price spike was short‑lived, however, as the kingdom worked quickly to restore the temporary loss of production. Real estate, consumer discretionary, and communication services stocks lagged the broad market with marginal gains. Health care stocks fell slightly.

Domestic investment‑grade taxable bonds generally declined, as long‑term Treasury interest rates rebounded from three‑year lows reached in late August. The Bloomberg Barclays U.S. Aggregate Bond Index returned ‑0.53%. Following its September 17–18 monetary policy meeting, the Federal Reserve lowered its federal funds target rate range by 25 basis points; the new range is 1.75% to 2.00%. There were three dissenting votes amid Fed governors: Two dissenters favored making no change, and one thought rates should be cut by 50 basis points.

U.S. Bond Returns
  Bloomberg Barclays
U.S. Aggregate Bond
Index

Bloomberg Barclays
Municipal Bond Index

JPMorgan Global
High Yield Index

September

‑0.53%

‑0.80%

 0.56%

Year-to-Date

 8.52

 6.75

11.27

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; Bloomberg Index Services Limited, J.P. Morgan. See additional Disclosures.

In the taxable investment‑grade bond universe, mortgage‑backed securities edged higher, while asset‑backed securities fell slightly. U.S. Treasuries and corporate bonds declined, especially longer‑term issues. Tax‑free municipal bonds also fell and slightly underperformed the broad taxable bond market. High yield bonds posted modest positive returns and outperformed higher‑quality issues.

Stocks in developed non‑U.S. equity markets produced good returns. The MSCI EAFE Index, which measures the performance of stocks in Europe, Australasia, and the Far East, returned 2.92%. Developed Asian markets were mostly positive, though Hong Kong shares slipped less than 1%. The city’s chief executive withdrew a controversial extradition bill, but demonstrators continued to demand other changes from the government. Japanese shares outperformed the region with a 4% gain in U.S. dollar terms. At the end of the month, President Trump and Japanese Prime Minister Shinzō Abe signed a limited, tariff‑reducing trade deal that takes effect at the beginning of 2020. Both countries are expected to work on a wider‑reaching trade agreement at some point next year.

Non-U.S. Stock Returns
  MSCI EAFE Index MSCI Emerging Markets Index

September

 2.92%

1.94%

Year-to-Date

13.35

6.22

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; MSCI. See Additional Disclosures.

European stock markets generally rose in U.S. dollar terms, although a weaker euro versus the dollar reduced returns to U.S. investors. Eurozone markets were lifted in part by European Central Bank (ECB) President Mario Draghi’s announcement of new stimulus measures. Shares in Sweden, Spain, and Portugal rose roughly 4%. UK shares also rose about 4% in U.S. dollar terms—helped by a 1% gain in the British pound—as worries of a no‑deal Brexit seem to have lessened. British Prime Minister Boris Johnson’s attempt to suspend Parliament for several weeks prior to the UK’s expected October 31 departure from the European Union—apparently intended to hinder lawmakers from stopping Brexit—was deemed unlawful by the UK’s supreme court.

Emerging markets stocks rose but slightly underperformed developed non‑U.S. markets. The MSCI Emerging Markets Index returned 1.94%. Emerging Asian markets were mixed. South Korean shares surged 7%, whereas Indian shares advanced 3%, as the government announced corporate tax rate reductions to boost growth. Chinese stocks were fairly flat, while Indonesian stocks dropped 3%. In emerging Europe, Turkish shares surged 12% in dollar terms, as the lira appreciated 3% versus the dollar and as declining inflation enabled the central bank to reduce its key short‑term interest rate from 19.75% to 16.5%. Russian shares rose 3%. In Latin America, Argentine shares rose 8.5% in dollar terms, as the equity market recouped part of its deep August losses. The implementation of new currency controls at the beginning of the month was intended to help stem capital outflows. Stocks in Brazil and Mexico rose more than 2%.

Bonds in developed non‑U.S. markets produced negative returns in U.S. dollar terms due to rising bond yields in various countries and a stronger dollar versus other currencies. In the UK, the 10‑year gilt yield spiked in the first half of the month but retraced its ascent in the second half, finishing at 0.49%. In the eurozone, the ECB cut its deposit rate from ‑0.4% to ‑0.5% and relaunched its quantitative easing program, saying it would purchase EUR 20 billion of securities every month beginning November 1. The benchmark German 10‑year yield remained in negative territory but rose from ‑0.70% to ‑0.57%. In Japan, where the central bank kept short‑term interest rates at ‑0.1% and continued targeting a 10‑year government bond yield of about 0%, the 10‑year yield increased from ‑0.27% to ‑0.21%.

Emerging markets bonds were relatively flat, but local currency bonds posted positive returns despite broad U.S. dollar strength. Some key currencies that appreciated against the dollar during the month include the Argentine and Mexican pesos, the Turkish lira, and the South Korean won.

Non-U.S. Bond Returns
  Bloomberg Barclays
Global Aggregate
Ex-U.S. Dollar Bond
Index

JPMorgan Emerging
Markets Bond
Index Global
Diversified

JPMorgan GBI-EM
Global Diversified
Index

September

‑1.42%

‑0.46%

0.96%

Year-to-Date

 4.38

12.99

7.86

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; Bloomberg Index Services Limited, J.P. Morgan. See Additional Disclosures.

Additional Disclosures
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

The S&P 500 Index and S&P MidCap 400 Index are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and have been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index and S&P MidCap 400 Index.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

Emerging markets stocks rose in September as global central banks loosened monetary policy to boost demand amid a backdrop of flagging economic growth. Central banks in China, Brazil, Mexico, and Russia joined the Federal Reserve and European Central Bank in lowering their interest rates and implementing other stimulus measures as the U.S.‑China trade battle increasingly weighed on the global outlook. Despite the raft of easing measures, evidence of slowing growth continued to accumulate. The Organisation for Economic Cooperation and Development forecast that the global economy would expand 2.9% this year and 3.0% in 2020, the weakest annual growth rates since the 2008 global financial crisis, and lowered the growth forecasts for most major economies that it made just four months ago. Eight sectors in the MSCI Emerging Markets Index rose, led by information technology. The utilities, health care, and consumer discretionary sectors fell. 

Total Returns
MSCI Index September Year-to-Date
Emerging Markets (EM) 1.94% 6.22%
EM Asia 2.02 6.28
EM Europe, Middle East, and Africa (EMEA) 1.01 5.68
EM Latin America 2.63 6.59

Past performance is not a reliable indicator of future performance.
All data are in U.S. dollars as of September 30, 2019. This table is shown for illustrative purposes only and does not represent the performance of any specific security.
Source: MSCI. See Additional Disclosures.

Chinese Stocks End Mixed as PBOC Cuts Key Rate; Southeast Asian Stocks Soften on Export Weakness

  • U.S. dollar‑denominated Chinese stocks ended nearly flat and yuan‑denominated A shares rose slightly. The People’s Bank of China (PBOC) cut the required reserve ratio for all banks for the third time this year, a move that released 900 billion yuan, or roughly USD 126 billion, of liquidity into the county’s financial system. The PBOC’s rate cut amounted to China’s strongest easing measure this year as it sought to counter the impact of U.S. tariffs.
  • Indian stocks rose 3% after the government unexpectedly slashed the headline corporate tax rate for domestic companies to 22% from 30% in the current fiscal year that began in April. The USD 20 billion tax cut follows a corporate tax cut in Indonesia and comes as Asian countries compete for foreign investment amid disruptions arising from the U.S.‑China trade war.
  • Southeast Asian stocks declined as trade tensions darkened the outlook for the region’s export‑driven economies. Indonesia’s central bank cut its benchmark interest rate by a quarter‑point for the third straight month, while the Philippines’ central bank cut its key rate for the second straight month. Policymakers in Malaysia and Thailand left their key rates on hold. However, Malaysia’s central bank said that its 2019 outlook was “subject to further downside risks from worsening trade tensions,” while Thai policymakers cut their economic growth forecasts for this year and next. 

Brazilian and Mexican Stocks Advance After Rate Cuts; Andean Stocks Are Mixed

  • Brazilian stocks rose. Brazil’s central bank cut its benchmark interest rate by a half percentage point to a record low 5.5%, its second such reduction since July, and signaled that further easing was on the horizon.
  • Mexican stocks advanced. Mexico’s central bank cut its key rate by 25 basis points for the second straight month to 7.75% and said the risks facing the economy remained biased toward slower‑than‑forecast growth after the country averted a recession in the year’s first half. Mexico’s economy is expected to expand just 0.5% this year, the least in a decade, according to Bloomberg.
  • Andean stocks were mixed: Chilean and Peruvian stocks rose, while Colombian stocks declined. Chile’s central bank reduced its key rate by 50 basis points to a nine‑year low of 2.0% and cut its 2019 growth forecast for the second time since June, reflecting the U.S.‑China trade dispute’s growing toll on the copper‑driven economy. Peru’s central bank left its key rate unchanged but reduced its economic growth forecasts for this year and next. Colombia kept its key rate at 4.25%, where it has stayed since April, and raised its full‑year growth forecast to 3.2% from a prior 3.0% estimate. 

South African Stocks Retreat as Economy Remains Weak; Turkish Stocks Rally on Large Rate Cut

  • South African stocks declined. South Africa’s economy entered the 70th month of a weakening cycle in September, according to the central bank, as worries about cash‑strapped state utility Eskom Holdings’ impact on public finances hurt business confidence. The central bank left its benchmark interest rate unchanged and cut its economic growth forecasts for 2020 and 2021.
  • Russian stocks gained about 3%. Russia’s central bank cut its benchmark rate by 25 basis points to 7.0%, its lowest level since March 2014, and its governor said it was “probable” that policymakers would reduce the rate again at an upcoming meeting. The central bank also lowered its economic growth forecasts for 2019 to 2021 due to a worse‑than‑expected global growth slowdown arising from trade tensions.
  • Turkish stocks rallied roughly 12%. Turkey’s central bank slashed its benchmark rate to 16.5% from 19.75%, a bigger‑than‑expected reduction following an outsized cut in July. The bank’s move came weeks after Turkey reported that its economy grew a surprisingly strong 1.2% in the second quarter from the first quarter, when it expanded a revised 1.6%, defying expectations of a full‑year recession. However, the International Monetary Fund called Turkey’s easing cycle “too aggressive” and said that the country’s medium‑term outlook would likely “remain subdued” given balance sheet strains.

Solid Fundamentals in Emerging Markets Offset Near‑Term Risks

We are optimistic about the long‑term outlook for emerging markets. Most developing countries have smaller current account deficits, larger foreign exchange reserves, and more flexible currencies than they did in previous decades, reducing the risk of a financial crisis. Compared with developed markets, most emerging markets have more attractive demographics and a stronger tailwind from rising consumption. Corporate earnings in emerging markets have recovered after years of disappointing performance, and valuations for many companies are attractive compared with their developed markets peers. Rising trade tensions and slowing global economic growth represent the most pressing near‑term risks. However, we believe that careful stock selection based on intensive research remains the key driver of long‑term performance as individual emerging markets countries and companies continue to show wide dispersion in their returns.

Additional Disclosures

MSCI and its affiliates and third‑party sources and providers (collectively, MSCI) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast, or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

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