Investors’ worries caught up with the market in September as the stock market had its worst month since early in the pandemic as the S&P 500 was down 4.8% for September. This comes on the eve of what some investors call the October Effect, a psychological anticipation that financial declines and market crashes are more likely to occur during this month. Couple that with worries about the government proposing a massive tax overhaul. What effects will supply chain issues have? Are we going to see another wave of COVID? Inflation? Is the market having a Taper Tantrum like the one that was predicted to happen in 2013 after the Fed’s announcement that it would slow its bond purchases aka quantitative easing? Uncertainty can create unease…

One thing I do know with certainty is that you should be prepared for every eventual outcome by having a plan in place no matter the market signals. Speaking of market signals…. Let’s dive right into what we are seeing in the market and what that means for you.

For the 3^rd quarter the major market indexes didn’t add much to the performance numbers for 2021.  However, September numbers are interesting:

• S&P 500 Large Cap Index -4.79%
• iShares Core U.S. Aggregate Bond ETF (AGG) -0.95%
• iShares 20+ Year Treasury Bond ETF (TLT) -3.07%
• S&P 600 Small Cap Index -2.56%
• iShares MSCI USA Momentum Factor ETF (MTUM) -3.94%
• Zacks Micro Cap Index                                 +0.71%
• iShares MSCI USA Quality Factor ETF (QUAL) -6.45%
  • Performance data from Reuters

There are a couple of things I find interesting about these numbers.  First, both the S&P 500 and the bonds (AGG, TLT) lost money.  Is this a preview to the Fed’s tapering of bond purchases (and diversification not working)?  Second, the “lower risk equities” dropped the most.  QUAL (‘the best quality large and mid cap stocks’) was down 6.45% while the highly volatile Zacks Micro Cap Index was up 0.71%!

I don’t believe September marked a rotation from safer stocks into riskier areas; I believe there was profit taking from the most consistent areas of equites.  Is this a temporary pause or is it a sign of buttoning up in preparation of tapering?

4^th Quarter Thoughts

With the pending Fed tapering (likely beginning in November) and other economic bottlenecks, it makes it difficult to imagine a scenario where the 4^th quarter continues the productive markets we had prior to September.  Will Black Friday show the consumer confidence needed to keep the markets at current levels?  It’s not looking too good right now:

Whether the markets continue rising or take a pause, we aim to have a plan for all eventualities. It’s what we do.

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.