Equity markets in the US were positive in September, with larger company indices outpacing smaller ones. Outside the US, developed markets were more or less in line with our markets, but emerging markets gapped higher late in the month. The rally in emerging markets coincided with government stimulus measures in China, which drove enthusiasm for Chinese equities. Whether or not the enthusiasm is justified remains to be seen, but history would suggest caution is prudent.
Bonds continued to rise as interest rates ticked lower, and the appetite for a corporate credit environment remained strong. The Federal Reserve cut interest rates by half a percent in mid-September, which added to the general easing of conditions. Initially, longer-term rates fell but have crept higher along the yield curve over the last several weeks. Whether this indicates central banks are easing too soon, the economic environment is still relatively strong, or something else entirely is an open interpretation. While the Fed signaled this is the start of an easing cycle, the timing and pace of future easing is uncertain.
As we think about 2025, we note that the economic cycle has been unusual and unpredictable. There is an election in a few weeks, the outcome of which may not be known for several days or weeks and could be subject to legal challenges. Uncertainty is rising, which the market tends to dislike, but uncertainty ebbs and flows more than fundamentals or the economy.
