From a market performance perspective, September was a relatively normal “risk-on” month as most Global Equity markets produced positive returns whereas most sovereign-oriented Fixed Income markets produced negative returns. On a year-to-date basis, however, most indices across Global Equity and Global Fixed Income markets have produced unusually high returns.
Recent interest rate movements are historically consistent with oncoming recessions. However, economic data remains extremely mixed and shifting political rhetoric regarding global trade has added to short-term uncertainty. In the face of all this, Global Equity markets have continued to deliver positive returns.
While there continues to be significant discussion regarding interest rates (e.g., yield curve inversions, central bank policy, etc.), the complexity of the current environment has increased what is always an immense challenge for forecasting.
US Equity markets remain expensive whereas Non-US Equity markets remain reasonably valued relative to their history.
Implied equity market volatilityremained lower than its historical average (≈19) throughout the entire month of September, although this metric did steadily rise from mid-month (≈13) to the end of the month (≈17).
The Market Sentiment Indicatorstayed at neutral at month end.
Market uncertainty, as measured by Systemic Risk, decreased during September. With that said, recent economic data suggests that the global economy is in a slowing, but not yet recessionary, phase. The potential for negative surprises exists as global economies navigate their respective “late-cycle” dynamics and geopolitical events continue to unfold, as evidenced by recent market movements.