The stock market reached multiple new all-time highs during the month of September. The S&P 500 advanced 3.5%, the Dow Jones Industrial Average gained 1.9%, and the NASDAQ composite took the lead with a 5.6% jump. Small caps were flat.  S&P 500 equal weight and bonds gained .5%, while the rest of the developed world (CWI) jumped 4%.

TWG growth, moderate and conservative gained 3.9%, 3.4% and 3.2% respectively, outperforming their respective benchmarks of 3.2%, 2.9% and 2.5%.

WHAT MOVED THE MARKETS

Financial markets in September were primarily driven by a combination of monetary policy expectations, developments in the labor market, and continued enthusiasm for technology stocks, despite some global and political uncertainties.

The Federal Reserve lowered its benchmark interest rate, citing concerns over a cooling labor market. This was a major driver for market optimism, as lower rates generally reduce borrowing costs for businesses and consumers, which can stimulate the economy.

Investors are largely pricing in expectations for further rate cuts before the end of the year, a significant tailwind for equities which pushed indices to record highs.

Key jobs data, including private-sector employment reports showing job losses and significant downward revisions to previous non-farm payroll figures, indicated a noticeable softening in the US Labor market. This weaker employment data was viewed as strengthening the case for the Fed to continue cutting rates, supporting a rally in stocks.  However, consumer confidence fell in September, with concerns over inflation and the weaking job market cited as primary factors.

The market continued to be fueled by robust optimism surrounding AI and technology stocks. Announcements of new partnerships and developments in AI infrastructure projects helped drive tech-heavy indices like the NASDAQ to new record levels.

Finally, a looming (and eventual) U.S. government shutdown as of October 1st introduced a degree of uncertainty. Ongoing global trade policy uncertainty and rising geopolitical tensions remained a backdrop, occasionally weighing on sentiment.

PORTFOLIO ADJUSTMENTS

To start the month, portfolios were composed of a diversified mix of ETF’s with a clear emphasis on technology and growth stocks, as indicated by the largest allocation to QQQ. Other notable holdings are bond-related (CWB – convertible bonds) and value/growth tilt ETF’s such as RPV, SPLG, and growth-oriented ETF’s like IWO (small cap growth) and RPG. Smaller allocations to Europe (IEV) and various size and style-focused ETF’s (IWN, IWS, VTV, SPGP) provided additional diversification. The value-add here lies in assembling a well-diversified base that balances growth-oriented ETF’s with defensive allocations like bonds and value stocks. This mix provides a solid growth potential foundation while mitigating downside risks through fixed income and value exposure, setting the stage for a balanced growth-risk trade-off.

By the end of the month, the portfolios underwent noticeable reallocation shifts. The allocation to QQQ significantly increased, marking a strong tilt towards high growth, large-cap technology stocks. New positions appeared such as IWF and EEM, introducing additional exposure to U.S. large-cap growth and emerging markets respectively.  S&P 500 allocation also increased, boosting broad-market exposure and improving benchmark alignment. Conversely, small growth-tilt ETF’s like IWN decreased, while the portfolio maintained a bond exposure to CWB, gaining 6% for the month. The increased weight in QQQ and SPLG suggests an intentional shift to capture continued growth opportunities while keeping broad market coverage.

The addition of EEM adds a layer of emerging markets diversification, broadening geographic risk exposure and return potential. Although this carries generally higher volatility, the blend with increased SPLG and stable bond exposure helps keep overall risk balanced. From a risk-return perspective, this tactical reweighting is likely to increase the portfolio’s beta and return potential given heavier technology and emerging market exposure. This strategy moves to capitalize on robust market segments while still maintaining a diversified balance across equity styles and fixed income. The adjustments also exploit market opportunities and adapt the portfolio dynamically – enhancing potential upside while carefully monitoring risk.

Overall, the portfolio benefits from sharper growth exposure to leading sectors, augmented geographic diversification, and improved benchmark alignment, all achieved through thoughtful rebalancing and asset selection driven by tactical insights.

LOOKING AHEAD      

As we enter the final quarter of the year, we are mindful of the huge rally in the markets over the past six months. October starts the seasonally strong six-month period of the year, where portfolio managers have one last quarter to meet or beat their respective benchmarks.  Year-to-date, only around 25% of large cap fund managers are beating their benchmark, so many have a need to play catch up into year end. This could likely result in winners continuing to win, and momentum continuing through the year.

Valuations are even more stretched than at the beginning of the year, but so far earnings have grown more than expected. Excitement around AI and data centers, along with dealmaking in tech keep sentiment positive and animal spirits alive.

With the Fed likely on a path of additional rate cuts, unemployment in the low 4% range, and lower yields on money markets can provide additional capital which will likely flow into the stock market. Stock participation also appears to be broadening, providing areas other than large cap tech to keep the bull running higher.

Of course there are risks. The proverbial wall of worry continues to add bricks, whether political, inflationary concerns, Fiscal policy and debt, a slowing labor market, geopolitical tensions, trade policy, or market concentration, such fears need to “show up” in price before we would consider allocating assets to lower risk investments. For now, the party seems likely to continue, and we are looking forward to a strong finish to the year. We would also not be surprised to see a period of consolidation or pullback during the month of October, but those pullbacks, in our opinion, are dips worth buying.

Enjoy the start of fall and the changing of season. We hope you are well!