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While economic growth continues to expand worldwide, the pace of recovery has slowed noticeably. Many investment categories posted losses for September amid COVID worries, a tense United States presidential and congressional election season, and heightened political tensions involving an empty Supreme Court seat. Still, consumer spending continues to rise, and many communities, companies, and school districts in the US have better contingency plans in place than they did at the pandemic’s outset.

The public health crisis and a global economy still on the mend are challenging enough for investors, but the hotly contested presidential election is adding significantly to investment uncertainties in the near term. This month’s Key Investment Perspective addresses how investors are perceiving uncertainty compared with the 2016 election, its impact on market volatility, and our views on managing portfolio allocations during these challenging times. In addition, we provide an overview of investment performance for each of the major asset types.

Key Takeaways

  • Global Equities: The Russell 3000 Index fell 3.6% during the month of September. Domestic large cap equities experienced a small factor rotation: The Russell 1000 Growth Index decreased by 4.7% while the Russell 1000 Value Index fell only 2.5%. US small cap equity also trended lower during the month, closing 3.3% below August’s close. Developed international equities dropped by 2.4% and emerging market stocks declined by 2.1%.
  • Fixed Income: The Bloomberg Barclay’s US Aggregate Bond Index was down 0.15% for the month. US Treasuries finished the monthly slightly higher (up 0.2%) and the Bloomberg Barclay’s US Corporate Bond Index fell by 0.3%. Municipal bonds finished the month essentially unchanged, but high-yield corporate bonds fell 1.0% due to worries about the economic outlook.
  • Tactical Allocation: We remain neutral in our equity allocation after increasing from an underweight earlier in the summer, and we continue to prefer US equity over developed international stocks. In fixed income, we are emphasizing high-quality investment-grade corporate debt while limiting exposure to government securities; we remain neutral with respect to high-yield debt. We also advocate alternative investments for suitable clients as low yields could lead to lower future returns in fixed income allocations.