As we enter October, the third quarter of 2017 is now behind us. While we still have to wait to receive most quarterly data, one detail is certain: Major indexes performed well between July and September. The S&P 500, Dow, and NASDAQ all had positive performance last month and gained at least 3.9% for the quarter. And they are each up 9% or more in 2017.  

With all of this growth, we have seen the indexes hit a number of record highs. And the quarter’s last trading day on September 29 was no different. Both the S&P 500 and NASDAQ closed with new records, with the NASDAQ reaching new heights for the 50th time this year. The Dow closed only 0.1% away from its record high—and notched its 8th straight quarter of gains for the first time since 1997. The S&P 500 also ended the quarter up for the 8th time in a row, and the NASDAQ had its 5th-straight quarter of gains.

Between the recent weather disasters and geopolitical tension, last month’s positive market performance might seem surprising. But rather than mirroring this volatility, markets were relatively calm. In fact, the S&P 500 had its least volatile September in history.  

Now, we will look at what happened last month and what may be on the horizon.

Right before the end of September, we received the final reading of Gross Domestic Product, or GDP, a critical measurement of the economy’s growth. The data showed 3.1% growth in the second quarter of 2017. This reading slightly beat expectations and indicates that the economy is growing faster than many people anticipated.

In addition, the latest readings of personal income and consumer spending increased. The services sector also showed growth, with 15 of 18 industries in the ISM Non-Manufacturing Index having positive readings. And after struggling for years, corporate earnings seem to be back on solid ground. Last quarter marked the first time in 6 years that corporate earnings had 2 solid quarters in a row.

But, the economy still has room for improvement. Industrial production and retail sales fell in their most recent reading. And the Fed’s preferred inflation indicator, the PCE, once again showed that inflation is far from the 2% rate that the Fed hopes to see. Nonetheless, the Fed has stated that it plans to raise interest rates four times before the end of 2018. If inflation remains low, they may have to rethink this plan.

One change the Fed will be making is to begin lowering their massive balance sheet this month. During the Great Recession, the Fed plunged trillions of dollars into the economy. The Fed now believes the economy is strong enough to handle more normal monetary policy. So far, the markets haven’t had a strong reaction to the Fed’s long-anticipated decision to reverse its so-called quantitative easing. But, we will continue to monitor this action—and a variety of other economic indicators—throughout the rest of 2017.

Looking ahead, many potential changes could be on the horizon, including tax reform. We are studying how any policy or economic updates could affect the markets.

For now, if you have questions about anything in the news or want more guidance on balancing your finances, we are here to talk.

That wraps up this month’s educational economic update.

Disclosure: While we believe the information in this report is reliable, we cannot guarantee its accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or a solicitation for the purchase or sale of any security. Please consult your financial professional before making any investment decision. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining markets. The indices mentioned are unmanaged and cannot be invested into directly. Past performance does not guarantee future results.

[1] http://www.marketwatch.com/story/us-stocks-set-for-weaker-open-but-monthly-gains-set-to-remain-intact-2017-09-29
[2] https://www.bloomberg.com/news/articles/2017-09-29/kindest-quarter-arrives-for-stock-market-that-nothing-can-rattle
[3] http://www.marketwatch.com/story/us-stocks-set-for-weaker-open-but-monthly-gains-set-to-remain-intact-2017-09-29
[4] https://www.cnbc.com/2017/09/29/stock-markets-wrap-up-solid-third-quarter.html
[5] https://www.cnbc.com/2017/09/29/stock-markets-wrap-up-solid-third-quarter.html
[6] https://www.cnbc.com/2017/09/28/final-reading-on-q2-2017-gross-domestic-product.html
[7] http://www.marketwatch.com/story/us-stocks-set-for-weaker-open-but-monthly-gains-set-to-remain-intact-2017-09-29
[8] http://www.ftportfolios.com/Commentary/EconomicResearch/2017/9/6/the-ism-non-manufacturing-index-rose-to-55.3-in-august
[9] https://www.bloomberg.com/news/articles/2017-09-29/kindest-quarter-arrives-for-stock-market-that-nothing-can-rattle
[10] https://www.cnbc.com/2017/09/15/us-stocks-weekly-gains-fed-retail.html
[11] http://www.marketwatch.com/story/fewer-auto-sales-dent-consumer-spending-in-august-inflation-still-weak-pce-shows-2017-09-29
[12] https://www.bloomberg.com/news/articles/2017-09-20/can-the-fed-unwind-without-unnverving-markets-quicktake-q-a

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Pinnacle Financial

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