Despite only a modest rise in September, the S&P 500 had its best quarterly return since 2013 and, with lagging international and emerging market returns, extended U.S. equities’ lead over the rest of the world year-to-date.

 

Economic data out of the Eurozone showed stalling growth while investors remain optimistic about the strength of U.S. assets. This faith in the U.S. economy outshone tensions with China and has been bolstered by some positive signs of Canada rejoining NAFTA negotiations.

 

The dollar has weakened slightly from earlier in Q3, but rose after the Federal Reserve announced the third rate increase of 2018. The strong dollar is still negatively impacting emerging markets as most of these countries have dollar-denominated debt that becomes more expensive with a stronger dollar. The Fed’s rate increase in September was expected and a fourth increase of the year is forecasted for December. Analysis of the Fed's statement regarding increasing rates raised expectations of more rate increases in 2019.

 

The U.S. technology sector stumbled in September as the Nasdaq Composite fell 0.8%, its largest monthly decline since Facebook’s data scandal in March. This sector’s valuations remain stretched and have strongly contributed to the market’s overall elevated multiples. These levels will be closely watched especially if the divergence from international stocks becomes more pronounced