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QUARTERLY MARKET COMMENTARY | SEPTEMBER Central banks get on the cutting edge.Global equity markets gained ground during the third quarter amid periods of volatility. Emerging markets outperformed their developed-market counterparts. Stocks rallied amid investors’ optimism leading up to the Fed’s interest-rate cut in mid-September, as well as previous rate reductions by several other major central banks. Stocks also beneted from generally favorable economic data and, late in the quarter, China’s announcement of new economic stimulus measures. The U.S. broad-market S&P Index posted its best performance for the rst nine months of a calendar year since , raising its aggregate market capitalization above trillion for the rst time. By an - margin, the Federal Open Market Committee (FOMC) voted to reduce the federal-funds rate by basis points (.) to a range of . to . following its meeting on September -. Fed Governor Michelle Bowman favored a -basis-point cut. According to a statement announcing the rate decision, the FOMC “has gained greater condence that ination is moving sustainably toward percent, and judges that the risks to achieving its employment and ination goals are roughly in balance…The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the [FOMC’s] goals.”The Fed’s so-called dot plot of economic projections indicated a median federal-funds rate of . at the end of , down from its previous estimate of . issued in June, signaling that the central bank anticipates additional federal-funds rate cuts totaling roughly basis points by the end of this year. The central bank also projected that the benchmark rate will drop another basis points to . by the end of . The Fed estimated that core ination, as measured by the core personal-consumption-expenditures (PCE) price index, will end the year at an annual rate of .—modestly lower than the central bank’s . forecast in March. The core personal-consumption-expenditures (PCE) price index is the Fed’s preferred measure of ination as it excludes volatile energy and food prices. The Pacic ex. Japan region was the strongest performer among developed markets for the third quarter, led by Hong Kong and Singapore. Conversely, in a reversal of a recent trend, the Nordic countries were the weakest performers due largely to Denmark, which declined during the quarter. Additionally, Norway recorded a relatively smaller positive return. The Association of Southeast Asian Nations (ASEAN) led the emerging markets for the quarter due mainly to strength in Thailand and the Philippines. Europe was the most notable laggard among emerging markets attributable primarily to weakness in Turkey and Poland. According to Bloomberg. September , . All equity market performance statements are based on the MSCI ACWI Index.Quarterly snapshot • Global equity markets gained ground during the third quarter amid periods of volatility. Emerging markets outperformed their developed-market counterparts. Stocks rallied amid investors’ optimism leading up to the Federal Reserve’s (Fed) interest-rate cut in mid-September, as well as previous rate reductions by several other major central banks. • Global xed-income assets posted gains for the quarter. U.S. Treasury yields moved signicantly lower across the curve, resulting in a positively sloped yield curve for the rst time in more than two years. (Bond prices move inversely to yields.) • Given the near-term eects of early stimulus measures in the U.S. on an already healthy economy and the wide-ranging eorts from China to prompt a rebound, we see lower recession probabilities and a favorable environment for risk assets in the fourth quarter.
Towards the end of the quarter, authorities in China announced a raft of new stimulus measures, dubbed a “policy bazooka” by some market observers, in hopes of turning around the world’s second-largest economy. On September , the People’s Bank of China, the nation’s central bank, announced reductions in key interest rates and reserve requirements for banks (among other policy actions), following up with a -basis-point decrease in the one-year policy loan lending rate the following day. Moreover, on September , China’s political leaders, including President Xi Jinping, made a statement vowing scal support for China’s economy. In the last week of September, stocks in Asia rallied on the news, with the Shanghai Shenzhen CSI Index, a market capitalization-weighted index that includes the largest companies on the Shanghai and Shenzhen stock markets, to its best weekly performance since . Global xed-income assets, as measured by the Bloomberg Global Aggregate Bond Index, advanced . for the quarter. Investment-grade corporate bonds were the strongest performers within the U.S. xed-income market, followed by mortgage-backed securities (MBS), high-yield bonds, and U.S. Treasury securities. Treasury yields moved signicantly lower across the curve. Yields on -, -, - and -year Treasury notes fell by corresponding margins of ., ., ., and ., ending the quarter at ., ., ., and ., respectively. The spread between - and -year notes widened from -. to . over the quarter, resulting in a positively sloped yield curve (in which longer-term yields are higher than shorter-term yields) for the rst time in more than two years. A positively sloped yield curve generally indicates that the economy is expected to grow in the future.Global commodity prices, as measured by the Bloomberg Commodity Total Return Index, saw an uptick of . during the quarter. The West Texas Intermediate (WTI) and Brent crude oil prices fell . and ., respectively, amid concerns that China’s slowing economy could hamper demand for oil. The New York Mercantile Exchange (NYMEX) natural gas price climbed . for the quarter amid an increase in demand for natural gas-generated electricity spurred by unusually hot weather in much of the U.S. The gold spot price was up . during the quarter, beneting from investors’ growing optimism leading up to the Fed’s interest-rate cut in September, as well as weakness in the U.S. dollar. (The gold price generally moves inversely to the U.S. dollar.) After declining in July due to relatively strong harvests (increasing supply) in the U.S., as well as a decline in exports from the country, wheat prices rallied to end the quarter up . amid increased demand. According to the U.S. Department of the Treasury. As of September , .Key measures: QEquityDow Jones Industrial Average8.72%S&P Index 5.89%NASDAQ Composite Index 2.76%MSCI ACWI Index (Net)6.61%BondBloomberg Global Aggregate Index 6.98%VolatilityChicago Board Options Exchange Volatility IndexPRIOR QUARTERLY: . 16.73OilWTI Cushing crude oil pricesPRIOR QUARTERLY: . $68.17CurrenciesSterling vs. U.S. dollar $1.34Euro vs. U.S. dollar $1.12U.S. dollar vs. yen¥143.04Sources: Bloomberg, FactSet, Lipper
Economic dataU.S. The Department of Labor reported that the consumer-price index (CPI) rose . in August, matching the upturn in July. The . year-over-year advance in the index was down from the . annual rise in July, and represented the smallest annual increase since February . Housing costs were up . and . in August and year-over-year, respectively. Transportation increased . for the month and . versus the same period in . Conversely, prices for fuel oil declined . for the month and . year-over-year, while gasoline prices fell . and . for the respective periods. The . rolling -month rise in core ination in August, as measured by the CPI for all items less food and energy, was unchanged from the annual rise in July, which was the smallest year-over-year increase since April .According to the third estimate from the Department of Commerce, U.S. gross domestic product (GDP) increased at an annualized rate of . in the second quarter of —unchanged from the government’s second estimate and more than doubling the . rise in the rst quarter of the year. The largest contributors to GDP growth for the second quarter included consumer spending, private inventory investment (a measure of the changes in values of inventories from one time period to the next), and nonresidential xed investment (purchases of both nonresidential structures and equipment and software). Imports, which are subtracted from GDP, increased over the quarter. Major Index Performance in Q3 2024 (Percent Return)• Fixed Income • EquitiesMSCI Emerging Markets Index (Net) MSCI ACWI EX-USAIndex (Net) Bloomberg Global Aggregate ex-Treasury Index MSCI World Index (Net) (Developed Markets) Bloomberg Global Treasury IndexBloomberg Global Aggregate Index02.04.06.08.010.0Sources: FactSet, Lipper
U.K.The Oce for National Statistics (ONS) reported that ination in the U.K., as measured by the CPI increased . in August, up from the . decline in July. The CPI rose at an annual rate of ., matching the -month upturn for the previous month. The largest contributor to the year-over-year rise in ination included alcohol and tobacco, and health care, which more than oset declines in costs for housing and household services, as well as furniture and household goods . Core ination, which excludes volatile food prices, rose by an annual rate of . in August, up from the . year-over-year increase in June. According to the second estimate of the ONS, U.K. GDP expanded by . in the second quarter, slightly lower than both the government’s initial estimate of . and the . growth rate in the rst quarter of this year. Output in the services sector rose . over the three-month period, while production and construction output fell . and ., respectively.EurozoneEurostat pegged the ination rate for the eurozone at . for the -month period ending in September, a decline from the . annual increase in August. Costs in the services sector rose . for the period, down slightly from the . annual gain in August. Prices for food, alcohol and tobacco increased . year-over-year in August, marginally higher than the . annual rate for the previous month. Non-energy industrial goods increased . over the previous months, unchanged from the annual rise in August, while energy prices fell . following a . year-over-year downturn in August. Core ination, which excludes volatile energy and food prices, increased at an annual rate of . in September, slightly lower than the . year-over-year upturn for the previous month. According to the ONS. September , . According to the ONS. September , . According to Eurostat. October , .Fixed-Income Performance in Q3 2024 (Percent Return)Sources: FactSet, Lipper. See “Corresponding Indexes for Fixed-Income Performance Exhibit” in the Index descriptions section for more information.Emerging Markets (Foreign)U.S. Investment-grade CorporatesU.S.Treasurys Global Non-governmentU.S. MBS U.S. TIPS Global SovereignsU.S. ABS U.S. High Yield02.04.06.08.010.0Emerging Markets(Local)
Eurostat also reported that eurozone GDP edged up . in the second quarter of , down marginally from the . increase in the rst quarter, and grew . year-over-year. The economies of Iceland and Norway were the strongest performers for the second quarter, expanding . and ., respectively. In contrast, GDP in Ireland and Latvia declined by corresponding margins of . and . during the quarter. Central banksAt a news conference following the FOMC meeting on September , Fed Chair Powell noted that the central bank does not feel the urgency to implement more aggressive interest-rate reductions. “There is nothing in the [dot plot] that suggests the [FOMC] is in a rush,” he said. Powell added that the Fed is “moving at a pace we think is appropriate.” He also commented that the central bank is “committed to maintaining our economy’s strength. This decision reects our growing condence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained.” When asked if the larger rate cut was an eort by the central bank to compensate for not easing monetary policy sooner, Powell replied, “We don’t think we are behind. We think this is timely but you can take this as a sign of our commitment not to get behind.” The Bank of England (BOE) maintained the Bank Rate at . at its meeting on September . One BOE Monetary Policy Committee (MPC) member voted to reduce the benchmark interest rate by basis point (.) to .. In its announcement of the rate decision, the MPC commented, “In the absence of material developments, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for suciently long until the risks to ination returning sustainably to the target in the medium term have dissipated further. The Committee continues to monitor closely the risks of ination persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.” According to Eurostat. September , .Regional Equity Performance in Q3 2024 (Percent Return)• Countries • RegionsSources: FactSet, Lipper. See “Corresponding Indexes for Regional Equity Performance Exhibit” in the Index descriptions section for more information.United Kingdom United States EM Latin America Pacic ex Japan03.06.09.012.015.0
For the second time over its past three meetings, the ECB reduced its benchmark interest rate by . points to . on September . The ECB had cut its benchmark rate by . in early June—its rst cut since . In a statement announcing the rate decision, the ECB’s Governing Council noted that “the dynamics of underlying ination and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction.” The central bank projects that the eurozone economy will grow . for the calendar year—down marginally from its previous estimate of ., due to ‘a weaker contribution from domestic demand over the next few quarters.” The Bank of Japan (BOJ) left its benchmark interest rate unchanged at . following its meeting on September -. In a statement announcing the rate decision, the BOJ commented, “Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensies against the background of factors such as accommodative nancial conditions.” The central bank expects ination to increase gradually and that “medium- to long-term ination expectations will rise with a virtuous cycle between wages and prices continuing to intensify.” During a news conference following the meeting, BOJ Governor Kazuo Ueda noted that there is some uncertainty regarding the ability of the U.S. economy to achieve a soft landing; consequently, the BOJ must take more time to determine if more interest-rate hikes are needed. “The outlook for overseas economic development is highly uncertain. Markets remain unstable. We need to scrutinize such developments carefully for the time being,” he said. Global Equity Sector Performance in Q3 2024 (Percent Return)Sources: FactSet, Lipper. MSCI ACWI Index Components (as dened by SEI).-5.005.010.015.020.0Consumer Discret-ionaryFinancials Industrials ConsumerStaplesUtilities EnergyHealthcareMaterials MSCI ACWI IndexReal Estate Information TechnologyTelecomm-unication Services
SEI’s viewGiven the near-term eects of early stimulus measures in the U.S. on an already healthy economy and the wide-ranging eorts from China to prompt a rebound, we see lower recession probabilities and a favorable environment for risk assets in the fourth quarter. Broader participation in global equities is our key viewpoint, as performance should expand beyond a handful of names in a few sectors from one country. The rest of the world outperforming the U.S., emerging markets outperforming developed, small caps outperforming large, value stocks outperforming growth, and active management outperforming passive are all versions of the reation theme we see potentially playing out for the remainder of . Therefore, while we remain, as always, strategically diversied among protable companies with strong earnings momentum at reasonable prices, we are particularly condent in global value and active management in the U.S. large-cap space. Value looks particularly attractive as the magnitude of the dispersion between cheap and expensive names has reached historically wide levels. Likewise, we favor active management in U.S. large caps given the unusually high amount of idiosyncratic risk in passive strategies from increased concentration in high-multiple, mega-tech names. Our positive view on broad commodities has also been reinforced, in particular, by the Chinese stimulus eorts. Most complexes should benet, including industrial and precious metals, despite the latter’s strong performance this year. Energy is worth another look as rhetoric from Saudi Arabia regarding increased production levels raises concerns; however, elevated tensions in the Middle East are enough of an oset in the near term.One of the key events of the third quarter was the sharp drop in yields as investors priced in central bank pivots around the globe. In the U.S. for instance, the yield on the -year note started the quarter at just under ., reaching a low of . just before the September Fed meeting. Interestingly, after the Fed lowered overnight rates, the -year yield rose to close out the quarter at roughly .. This combination of lower short-term yields but higher longer-term yields nally reversed the two-year-long inversion of the U.S. yield curve. More importantly, we see this trend as the market beginning to question the eects of monetary stimulus and scal excess on longer-term yields. We couldn’t agree more. We see upward pressure on longer-term rates in the U.S. even with additional interest rate cuts from policy-makers in .Speaking of scal excess, we would be remiss to not mention the upcoming U.S. presidential election. While dierences are stark between the two major-party candidates, there are actually areas of common ground. Unfortunately, one of those areas is a lack of any interest in reigning in government spending. As we have noted before, government debt has reached the point where it must be addressed. Sadly, entitlement reform remains a “third rail” in U.S. politics, which should keep upward pressure on long-term interest rates. With regards to the election outcome, for what it’s worth, our sense is that the most likely result in some combination of divided government, which tends to be the most favorable outcome for markets. We will not be positioning for anything specic, but will continue to emphasize truly diversied portfolios, which we believe remain the best approach in managing uncertainty.We see lower recession probabilities and a favorable environment for risk assets in the fourth quarter.
Glossary of Financial TermsThe federal-funds rate is the interest rate charged to lending institutions on unsecured overnight loans. It is set by the U.S. Federal Reserve’s Federal Open Market Committee. The rate is increased when the Federal Reserve wants to discourage borrowing and slow the economy and decreased when the Federal Reserve wants to spur economic growth.Yield is the income returned on an investment, such as the interest received from holding a security. The yield is usually expressed as an annual percentage rate based on the investment’s cost, current market value, or face value.Yield curve represents dierences in yields across a range of maturities of bonds of the same issuer or credit rating (are (which is used to assess the risk of default of companies or countries). A steeper yield curve represents a greater dierence between the yields. A atter curve indicates that short- and long-term yields are closer together.An inverted yield curve occurs when short-term yields exceed long-term yields. While an inverted yield curve historically has predicted economic recessions, it is an indicator—not a forecast.Monetary policy refers to decisions by central banks to inuence the amount of money and credit in the economy by managing the level of benchmark interest rates and the purchase or sale of securities. Central banks typically make policy decisions based on their mandates to target specic levels or ranges for ination and employment.
Index DescriptionsAll indexes are quoted in gross performance unless otherwise indicated.The MSCI ACWI Index is a market capitalization-weighted index that tracks the performance of over , companies, and is representative of the market structure of developed and emerging-market countries in North and South America, Europe, Africa, and the Pacic Rim. The index is calculated with net dividends reinvested in U.S. dollars. The personal-consumption-expenditures (PCE) price index measures the prices that consumers pay for goods and services to reveal underlying ination trends. The core PCE price index, the primary ination monitor used by the Federal Reserve, excludes volatile food and energy prices.The Shanghai Shenzhen CSI Index is a market capitalization-weighted index that tracks the performance of the largest companies on the Shanghai and Shenzhen stock markets.The Bloomberg Global Aggregate Bond Index is a market capitalization-weighted index that tracks the performance of investment-grade (rated BBB- or higher by S&P Global RatingsFitch Ratings or Baa or higher by Moody’s Investors Service) xed-income securities denominated in currencies. The index reects reinvestment of all distributions and changes in market prices. The Bloomberg US High Yield Index tracks the performance of xed-rate, publicly issued, non-investment-grade (rated BB or lower by S&P Global Ratings and Fitch Ratings or Ba or lower by Moody’s Investors Service) bonds.The Bloomberg US Treasury Index tracks the performance of xed-rate, nominal debt issued by the US Treasury. The Bloomberg US Mortgage Backed Securities Index tracks the performance of xed-rate agency mortgage-backed securities (MBS) guaranteed by the Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), and Freddie Mac (FHLMC).The Bloomberg US Corporate Investment Grade Index tracks the performance of the investment-grade, xed-rate, taxable corporate bond market. The Bloomberg Commodity Total Return Index comprises futures contracts and tracks the performance of a fully collateralized investment in the index. This combines the returns of the index with the returns on cash collateral invested in -week (three-month) U.S. Treasury bills.Consumer-price indexes measure changes in the price level of a weighted-average market basket of consumer goods and services purchased by households. A consumer price index is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.
Corresponding Indexes for Fixed-Income Performance Exhibit U.S. High Yield ICE BofA U.S. High Yield Constrained IndexGlobal Sovereigns Bloomberg Global Treasury IndexGlobal Non-Government Bloomberg Global Aggregate ex-Treasury IndexEmerging Markets (Local) JPMorgan GBI-EM Global Diversied IndexEmerging Markets (External) JPMorgan EMBI Global Diversied IndexU.S. Mortgage-Backed Securities (MBS) Bloomberg US Mortgage Backed Securities IndexU.S. Asset-Backed Securities (ABS) Bloomberg US Asset Backed Securities IndexU.S. Treasurys Bloomberg US Treasury IndexU.S. Treasury Ination-Protected Securities (TIPS) Bloomberg - Year US TIPS IndexU.S. Investment-Grade Corporates Bloomberg US Corporate Bond IndexCorresponding Indexes for Regional Equity Performance ExhibitUnited States S&P IndexUnited Kingdom FTSE All-Share IndexPacic ex Japan MSCI Pacic ex Japan Index (Net)Japan TOPIX, also known as the Tokyo Stock Price IndexEurope ex U.K. MSCI Europe ex UK Index (Net)EM Latin America MSCI Emerging Markets Latin America Index (Net)DisclosuresThis material represents an assessment of the market environment at a specic point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding SEI’s portfolios or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable uctuation in currency values, from dierences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments.Diversication may not protect against market risk. Past performance does not guarantee future results. Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reect any management fees, transaction costs or expenses. One cannot invest directly in an index.Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI).© SEI . IMU US ()