Market Update from CIO Dave Klassen – September 2020

MARKETS

  • Global financial markets turned negative in September due to concerns regarding lofty valuations (U.S. big tech), delays in a stimulus package, and the upcoming U.S. elections. The developed and emerging market equity index (MSCI ACWI IMI), decreased -3.22% in September and is up +1.37% YTD. The S&P 500, which tracks large cap U.S. stocks, was down -3.80% in September and is up +5.57% YTD. The Russell 2000 Index, which tracks domestic small cap stocks decreased -3.34% in September and is down -8.69% YTD. The International developed equity index (MSCI EAFE), decreased -2.60% in September and is down -7.09% YTD. The emerging markets index (MSCI EM) decreased -1.60% in September and is down -1.16% YTD.
  • In September longer-term bond yields reversed course and increased; the 30-year U.S. Treasury bond yield decreased by 3 bps to +1.46%, the 10-year yield decreased by 3 bps to +0.69%, and the 5-year yield stayed flat at +0.28%.
  • The Barclays U.S. Aggregate Index, which is a measure of U.S. Bond prices, increased +0.03% for September and is up +6.83% YTD.

ECONOMIC AND GEOPOLITICAL HEADLINES

  • U.S. gross domestic product (GDP) in the second quarter of 2020 decreased – 31.4%, according to the “third” estimate released by the Bureau of Economic Analysis. The first quarter of 2020 GDP decreased -5.0%.
  • The September Services PMI (formerly Non-Manufacturing Purchasing Managers Index) increased to 57.80% from 56.90% in August, this represents expansion and was in-line with expectations of 57.00%. The September Manufacturing PMI decreased to 55.40% from August’s 56.00%. Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion.
  • September non-farm employment increased by 661,000 jobs, and the unemployment rate declined to 7.9%, as reported by the Bureau of Labor Statistics on October 2nd, 2020. In September employment rose due to the resumption of activity especially in retail trade, professional and business services, leisure and hospitality, and in health care and social assistance. Average Hourly Earnings (wages) increased 4.7% year-over-year in September.

PERFORMANCE UPDATES

  • The Equity Fund decreased by -2.33% in September and decreased -0.93% YTD. The Bond Fund decreased by -0.22% in September and is up +6.75% YTD. The Stable Value Fund was up +0.15% for September and is up +1.24% YTD. The Northern Trust Global Sustainability Index Fund (GSIF) decreased -3.00% for September and increased 1.93% YTD.
    The Balanced Fund decreased -1.48% in September and is up +2.71% YTD. The Target Annuitization Date (TAD) 2020; TAD 2025; TAD 2030; TAD 2035; and TAD 2040 were +0.14%, -0.83%, -1.37%, -1.56% and -1.69% respectively for September and +1.80%, +2.87%, +1.94%, +1.52%, and +0.33% YTD.