Talk about a disappointing start to the quarter.  In the first economic report of the new quarter, ISM Manufacturing came in weaker than expected falling from 49.1 down to 47.8 compared to expectations for a reading of 50.0.  While a miss of fewer than 1.5 points versus consensus expectations isn’t huge, investors treated it that way as the Dow has reversed more than 400 points from its earlier highs. What really spooked investors was the fact that the headline reading dropped to its lowest level since June 2009.

Breadth in this month’s report was also poor as six categories showed m/m declines while just four showed increases.  On a year/year basis, things were even worse as Customer Inventories were the only category up versus this time last year.  Some of the more notable decliners were Production (first chart below), which fell to its lowest level since April 2009, and Export Orders which is at its lowest level since March 2009.

In the case of Export and Import Orders, this month we saw a really wide disparity between the two.  While Export Orders fell to its lowest level since March 2009, Imports actually increased. Normally these two indices move in unison with each other, but this month saw a wide divergence suggesting that the US economy is still on a better footing than international economies. In fact, the current spread between Exports and Imports hasn’t been this negative since September 2007.  Start a two-week free trial to Bespoke Institutional for full access to our research and market analysis.

One of the world’s largest packing product companies, Sonoco (SON)—not to be confused with major gas station brand Sunoco (SUN)—had a bit of a rough third quarter. Declining just over 10% in this time, the stock fell to the lower end of the past few years’ uptrend channel; taking out both the 50 and 200-DMAs in the process. Since mid-August, though, the stock has rounded out a bottom and has moved back above the 50-DMA. This also coincided with a support level that shares with the highs from around this time of year in 2018. In other words, while the shorter-term trend has been somewhat weak, the longer-term technicals have held up just fine.

SON’s dividend also helps its attractiveness.  SON currently pays 2.94%, which is 50 bps more than the average for other Materials sector stocks in the S&P 1500.  While somewhat high, the payout ratio is at 55.15%, meaning there is some security in the dividend by that metric. But that is not taking into account the fact that the company has been paying, and growing, its dividend consistently since the mid-80’s. Back in the spring, SON raised its quarterly dividend again from $0.41 per share to $0.43.  That means for every 100 shares ($5,818), you’ll get $172 in dividend income per year from SON.  That’s nearly twice the $96 you’d get per year from the same $ investment in the 10-Year Treasury.

Below is a snapshot of US equity index ETFs from our Trend Analyzer tool.  The Trend Analyzer helps investors easily see where a large number of stocks or ETFs are trading relative to their normal ranges.  When looking at the “Trading Range” section, the black, vertical line represents each ETF’s 50-day moving average, and the dot represents where the ETF’s price is currently trading.  The tail end of the dot shows where the ETF was trading one week ago, so if the dot is to the left of the tail, the ETF’s price moved lower within its trading range over the last week.

Over the last week, every major US equity index ETF moved lower within its range with the exception of the Dow 30 (DIA).  The small-cap Russell 2,000 (IWM) and the Micro-Cap ETF (IWC) both moved back below their 50-day moving averages, while the Nasdaq 100 (QQQ) is the next closest to testing its 50-DMA.  Start a two-week free trial to Bespoke Institutional for full access to our research and market analysis.

Looking at US sector ETFs, we saw Communication Services (XLC), Energy (XLE), and Health Care (XLV) break below their 50-day moving averages over the last week, while Consumer Staples (XLP) moved from neutral to overbought.  Along with Utilities (XLU) and Real Estate (XLRE), the only sectors that are overbought right now are defensive in nature.

Welcome to October. The most volatile month of the year.  While most investors and traders are well aware of the increased tendency for volatility in the month of October, the chart below provides an excellent illustration of that trend.  In it, we show the average percentage spread between each month’s closing high and closing low going back to 1928.  For all months since 1928, the S&P 500 has averaged an intra-month spread of 6.41%, but for the month of October, the average has been nearly two full percentage points wider at 8.25%!  The next closest month in terms of intra-month volatility has been November with an average range of just 6.96%.  While October is a big outlier in the data, volatility in the market is pretty seasonal.  From July right through November, average intra-month volatility is above the historical average for all months, but from December through June, the average intra-month range has been below average. Start a two-week free trial to Bespoke Institutional for full access to our research and market analysis.

Markets officially closed the books on the third quarter today and based on where things stood at the end of August, equities finished the quarter in considerably better shape than most people would have expected.  Think about it. At the end of August, we had just seen a month of major volatility heading into what has historically been the worst month of the year for equities, but thirty days later, the S&P 500 finished the month in positive territory enough so to scratch out a positive return for the quarter.  The primary benchmark for US large-cap stocks (SPY) is up 20% YTD through the first nine months of the year for the first time since 1997.  Besides the S&P 500, every major index ETF we track in our Asset Class Performance matrix had a gain in September.  For the quarter, only three ETFs (mid and small-cap focused) were down, while two other ETFs (Nasdaq 100 and the Russell 1000) have logged YTD gains of 20%+.

Value was the big winner in September as those ETFs were all up around 5% this month.  YTD, though, there’s a bit of a disparity; while large and mid-cap growth ETFs are outperforming their value peers, small-cap growth is actually underperforming small-cap value by a wide margin.

In terms of sector returns, Health Care was the only one to finish September in the red, and it is now the worst-performing sector YTD.  In addition to Health Care, the only other sector that is up less than 10% on a YTD basis is Energy.  Heading into the quarter Energy was up over 10%, but a 6% decline in Q3 erased more than half of its YTD gains.  On the upside, the biggest Q3 gainers were Utilities and Financials. Technology slightly underperformed the broader market in September, but it still outperformed the S&P 500 for the quarter padding to its gaudy 30%+ YTD performance numbers.  The fact that Technology (+31%) and Utilities (+25%) are the two leading sectors YTD shows just how unique the year 2019 has been.

Moving outside of the US, Hong Kong was the only country ETF that was down in September, and it was far and away the worst-performing sector in Q3 with a decline of over 12%.  While US equities were broadly positive in Q3, international markets were much more mixed on a dollar adjusted basis with eleven of the fourteen country ETFs listed down on the quarter.  Year to date, though, international returns have also been up across the board, although again, most have underperformed the S&P 500.

In the commodities space, even after dropping more than 7% in September, Silver was up over 11% in Q3.  Gold saw similar directional moves, although not nearly to the same degree.  In Energy, the wide disparity in performance between Oil and Natural Gas remains in place as their directional returns are in the opposite direction YTD, QTD, and MTD.

Outside of an extraordinary August, treasuries gave back some of those gains in September with the biggest declines at the long end of the curve.  Year to date, though, long-term treasuries are still looking at returns of just under 20%, or a percentage point less than the S&P 500.  Start a two-week free trial to Bespoke Institutional for full access to our research and market analysis.

Bespoke co-founder Paul Hickey appeared on CNBC’s The Exchange today (9/30) to talk about how markets are positioned heading into Q4.  To view the segment, click on the image below. Start a two-week free trial to Bespoke Institutional for full access to our research and market analysis.