September ended a resilient but increasingly complex third quarter, with the S&P 500 near all-time highs despite shifting market leadership and weaker breadth. Higher rates and energy prices were offset by strong earnings and continued AI optimism, reinforcing the importance of discipline and diversification.
Key Takeaways:
- Market Breadth: deteriorated considerably in September, with about 42% of S&P 500 companies trading above their 200-day moving average, down from roughly 75% at the end of August, signaling a significant shift in market leadership.
- Interest Rates: moved higher as stronger-than-expected growth and persistent inflation created another “good news is bad news” environment, with the 10-year Treasury yield ending September at 5.29%.
- AI: remains a major equity market driver, but the theme has become increasingly “show-me” focused as investors look more closely at fundamentals and whether AI investment is translating into results.
- Fixed Income: has become more attractive as higher rates have increased income from high-quality bonds, creating meaningful income and diversification opportunities within portfolios.