Market Review

Monthly Market Review

Data as of September 30, 2019

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U.S. Stocks

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.”

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

FactSet. 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.

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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.

T. Rowe Price Investment Services, Inc., distributor, and T. Rowe Price Associates, Inc., investment advisor.

© 2019 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

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