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Market Commentary: September 2018

Guy Myles, 04 October 2018

September marked another month of strong economic data emanating out of the US, and another round of interest rate hikes from both the Federal Reserve and Bank of England.

So strong has been US data, it would be fair to use emotive terms such as 'booming' to describe the world's largest economy. US consumer confidence is at its highest level since 2000, jobless claims fell to their lowest since 1969, and the forward-looking ISM Services index is now at a 21-year high.

While US equities have been the main beneficiary of this strong data through most of 2018, the impact in September was most pronounced on bond yields. The spectre of inflation is rising and low unemployment levels seem finally to be translating into wage growth (now at its highest since 2009).

All the fixed income trackers we hold in the Flying Colours portfolios lost money in September. The worst performing, the iShares Overseas Government Bond index, fell 1.6%, while the funds tracking corporate credit markets were all down around 0.75%.

Another key factor driving markets in September was the continued rise in the oil price. WTI Crude hit the $75 a barrel mark in the month, boosting the returns of oil and basic materials firms.

UK equities rose marginally - but this was almost entirely down to the well-represented Oil & Gas and Basic Materials sectors, which rose 6.2% and 5.9% respectively. Most other sectors of the UK market recorded negative returns, and indeed the more domestic-facing FTSE 250 index fell 1.6% in the month.

Finally, turning to emerging markets, which have been the laggard this year, it was another lacklustre month for equities (-0.7% in September in sterling terms) but a better month for emerging market debt.

The EMD Local Currency Bond index rose around 1.8% but is still down around 5.4% in 2018. This has been the main drag on the Flying Colours Dynamic portfolios this year, but remains an area of high conviction given the attractive real yields on offer.


Categories: Market Commentary

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