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Daily Capital

September Market Recap: Global Stocks Suffer First Losing Month Since January

Global stocks endured their first losing month since January. Looming defaults by China’s mega-developer Evergrande grabbed headlines, but anticipation of decelerating Fed stimulus appeared to be the bigger factor. Bond prices were also negatively impacted, and mortgage rates climbed back toward 3%. Value outperformed growth, as highly priced growth stocks remain viewed as being more reliant on ultra-low interest rates.

Market Corrections are Normal

Consistent gains since the initial pandemic crash have lured many into a sense of overconfidence. The recent turbulence provides a reminder that corrections are a normal and healthy party of equity investing. Corrections happen in most years and diversified investors should not be surprised or particularly uncomfortable.

The Fed Meeting

At the Fed meeting in September, Chairman Powell said, “moderation in the pace of asset purchases may soon be warranted”. Fed members also indicated that they expect higher inflation for this year, while sticking to the theme that recent inflation is largely “transitory”. Since the end of the subprime crisis 12 years ago, the first reaction of Fed and government has generally been to find ways to support asset prices and the economy at any material sign of weakness. It has favored short term benefits over unknown longer-term consequences. Unprecedented fiscal and monetary conditions fueling the long bull market and Covid-era rally will not last forever, but they remain a powerful force.

Our Outlook

With $300 billion in outstanding debt, Evergrande is big enough to cause waves and some damage. However, we do not believe defaults by Evergrande will create a dreaded “Lehman moment”. The evolution of China’s increasing business regulation and references to socialist ideology will prove more important, in our view.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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