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.

Health Care has had a lack-luster year with the worst YTD performance of the 11 sectors.  Pfizer (PFE) has been a prime example of this. The stock had been in a long term uptrend over the past several years, and after a big move higher in early 2018, 2019 has been another story. After a few lower lows over the past year, the stock fell dramatically in August in response to disappointing earnings. Although the damage has been done in regards to the near term technical picture, the longer-term uptrend is still in place.

Additionally, from a dividend-focused point of view, it is one of the best in the Health Care sector.  This recent drop sent the yield much higher. At just a hair under 4%, PFE currently has the third-highest dividend yield of all S&P 500 Health Care stocks. Additionally, the company has raised that dividend consistently over the past decade. Even with that high yield, the dividend payout ratio is only at 39% meaning the company has the earnings to cover or even raise its payout.

In a post in late August, we highlighted PFE’s massive decline in response to its last earnings report which led the dividend yield to spike higher. In turn, the yield drastically distanced itself from the yield on another major Dow Health Care stock, Merck (MRK). Since then, given the price has yet to move back to where it previously was, PFE’s yield continues to be much higher than that of MRK.  Though it is off its recent high, the difference between the two stocks’ yields is right near the highest levels of the current cycle. Start a two-week free trial to Bespoke Premium to access our most actionable equity market research.

Please click the image below to view our October 2019 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three premium research levels.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

While you’re here, join Bespoke Premium for 3 months for just $95 with our 2019 Annual Outlook special offer.

Politics

Pelosi, Trump and impeachment: How the speaker got to ‘yes’ by Lisa Mascaro (AP)

A tick-tock of the days leading up to the decision by the Speaker of the House to pursue articles of impeachment against the President. [Link]

The Moderate Middle Is A Myth by Lee Drutman (FiveThirtyEight)

While political pundits love to urge a shift to a mythical middle, there are very, very few voters who are some combination of politically moderate, undecided, and independent, suggesting that fighting for those votes is a waste of candidates’ time. [Link]

Research & Development

Daimler stops development of internal combustion engines: Complete focus on EVs (Financial Express)

While the Mercedes-Benz parent will still be producing internal combustion engines for some time to come, the company is halting all future development of fossil fuel-burning engines. [Link]

A Beating Heart, Even After Death by Haider Warraich (NYT)

While severe heart failure is still best remedied with a heart transplant, pumps that replace the left ventricle of the human heart are keeping patients alive dramatically longer in a novel combination of human and machine. [Link; soft paywall]

Google’s ‘Quantum Supremacy’ Isn’t the End of Encryption by Tom Simonite (Wired)

A quantum computer operated by Google was able to surpass the performance of a conventional machine at a specific task, but the improvement is not yet generally applicable. [Link; soft paywall]

Warning Signs

Miami Real Estate Is About To Collapse…by Harris Kupperman (Adventures In Capitalism)

A detailed walk-through of the highly levered and cyclical Miami housing market, which is choking on new supply and has no bid underneath in a potentially bad sign for the national economy. [Link]

Life in China Is Getting Harder, and Xi Jinping Should Worry (Bloomberg)

Slowing demand from abroad related to the US trade war, pork prices sent flying by swine flu, and the trend of declining growth are all causes for concern as the world’s most populous economy grinds along. [Link; soft paywall, auto-playing video]

The World’s Wealthiest Families Are Stockpiling Cash as Recession Fears Grow by Suzanne Woolley and Ben Stupples (Yahoo!/Bloomberg)

Very low interest rates, high valuations across equity markets and the private corporate market, and low corporate credit spreads leave cash looking pretty attractive. [Link]

Obituaries

Stories About My Brother by Prachi Gupta (Jezebel)

A memorial to a brilliant young man snuffed out too soon after a dangerous and painful procedure fueled by a lack of confidence. [Link]

Food

The Beyond Meat burger is coming to McDonald’s in a Canadian test by Jordan Valinsky (CNN)

The world’s largest burger purveyor is dipping its toe into the meatless waters, in a possible preview of broader plans following the successful roll-out of plant-based meat substitutes at a number of US chains. [Link]

Weird Scenes

U.S. Military Issues Warning to Troops About Incel Violence at Joker Screenings [Updated] by Dell Cameron (Gizmodo)

The US Army warned servicemembers about potentially dangerous situations at screenings of Warner Brothers’ Joker after the FBI uncovered social media posts that suggest a risk of violence. [Link]

The Libertarians on the Anti-Krugman Cruise Just Want to Be Left Alone by Lizzie O’Leary (Bloomberg)

Does a high seas foray into the world of libertarianism, animated by the foil of New York Times economics editorialist Paul Krugman, sound interesting? We have just the cruise for you. [Link; soft paywall]

Social Networks

The Complete Beginner’s Guide to TikTok by Matt Schlicht (Medium)

Ever heard of Tik Tok and wondered what you’re missing? You probably should have and you probably should wonder. Here’s a quick explainer. [Link]

ETFs

Why ETF Launches Have Ground To A Halt by Jeff Schlegel (Financial Advisor)

Only four new ETFs hit the market in August as product saturation and a lack of new ideas helped keep the industry from rolling out new options. [Link]

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Have a great weekend!