Treasury Yields Rise Following the Fed’s September Rate Cut

Monthly Client Letter
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

Photo Credit: Donnie Rosie, Unsplash

Monthly Market Summary

  • The S&P 500 Index returned -0.9%, outperforming the Russell 2000 Index’s -1.4% return. Three of the eleven S&P 500 sectors traded higher, with Financials and Communication Services gaining more than +1.5%. The remaining eight sectors traded lower by more than -1% during the month.

  • Corporate investment-grade bonds produced a -3.2% total return as Treasury yields rose, underperforming corporate high-yield’s -1.0% total return.

  • International stocks traded lower. The MSCI EAFE developed market stock index returned -5.3%, while the MSCI Emerging Market Index returned -3.1%.


Stocks End Five Month Winning Streak with First Loss Since April

Stocks finished October lower as investors navigated Q3 earnings, the upcoming election, and uncertain Federal Reserve policy. The S&P 500 posted its first monthly loss since April, lowering its year-to-date return to +20.7%. Large-cap stocks slightly outperformed small-cap stocks, but most investment factors produced similar returns. In the bond market, Treasury yields climbed as investors considered the possibility that the Fed may not cut interest rates as much as previously expected. Concerns about fiscal spending also drove Treasury yields higher, with expectations for continued high government spending regardless of the election outcome. With yields rising sharply, bonds traded lower for the first time in six months.


Treasury Yields Spike After the Fed’s September Rate Cut

What is behind this year’s bond market swings?

Volatile economic trends and uncertain Fed policy. Two key data points have increased volatility: inflation surged early in the year before easing over the summer. At the same time, unemployment rose from 3.7% in January to 4.3% in July, then fell to 4.1% in September. The Fed aims for stable prices and full employment, but conflicting data has complicated its interest rate decisions. There’s general agreement that the Fed should continue to lower interest rates, but there’s debate about how quickly and how much. The recent increase in Treasury yields reflects expectations for fewer interest rate cuts. As we have seen this year, that outlook could change in the coming months.


US Sector Returns (October in %)

US Sector Returns (Year to Date in %)

 

Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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