Your browser preferences are set to block location sharing.
Please adjust your preferences, or click here to view all offices.

September Chill: Stocks Suffer Modest Losses as U.S. Recovery Cools

By Kara Murphy

Key Takeaways

  • After climbing for five straight months, the stock market lost ground amid uncertainty tied to the presidential election, the stalemate over another stimulus package and rising COVID-19 infection rates.
  • Bond yields bounced around at low levels, leaving bond-index returns relatively flat for the month, but firmly in positive territory for the year-to-date and trailing 12-month periods.
  • The U.S. economy continued to heal, but key indicators, like retail sales and job growth, have risen at a slower rate than earlier in the recovery.

It’s been nearly two decades since the 9/11 terrorist attacks claimed nearly 3,000 lives and changed the course of history. That tragic event certainly shaped my life: I not only survived the attack on New York City’s World Trade Center — with some invisible scars — but grew even more committed to my then-fledgling career path with a goal of helping others build their own wealth.

As the country marked the 19th anniversary of 9/11 last month, I was struck by some parallels between that long-ago crisis and the one we now face. Both were triggered by exogenous shocks, or largely unforeseen events with global ramifications.

Similar to the period following 9/11, this economic recovery will depend largely on how we, as a society, handle the shock that precipitated the crisis: the pandemic itself. Also important to the recovery is the health of the U.S. economy and the markets before they were upended by the pandemic. Fortunately, a number of factors suggest we were on relatively stable footing in early 2020: limited financial imbalances among consumers and companies as well as reasonable stock market valuations, among other issues. What’s more, the U.S. government’s swift and aggressive response to COVID-19 crisis has mitigated its economic toll, although there’s widespread agreement on the need for more fiscal stimulus.

Still, it’s been a long crawl back. And yet, as after 9/11, we eventually closed a chapter on that dark period, which, despite its tragic toll, taught us lasting lessons about resilience and valuing what really matters.

Equity Markets

After rising for five consecutive months, the broad U.S. stock market, as measured by the S&P 500 index, lost ground last month. The decline was likely driven by headlines surrounding the upcoming presidential election, the stalemate in Washington D.C. over another fiscal stimulus package and the recent increase in COVID-19 infections.

The U.S. has already experienced two peaks in new COVID-19 infection rates and, as of late September, appeared headed for a third, according to a report published Sept. 27th by our colleagues in Goldman Sachs Investment Strategy Group (ISG). Globally, new daily COVID-19 cases were also on the upswing in late September. Based on the steady increase in infections, we’re still in an acute phase of the pandemic, which raises fresh concerns about the potential strain on health care systems as we head into the fall and winter flu season.

That said, we’ve seen several positive developments on the health care front:

  • The number of new COVID-19 tests performed in the U.S. continues to climb. Testing, which is critical to controlling the spread of the disease, now stands at about 800,000 per day and briefly reached more than 1 million per day on at least three occasions in late September, according to the ISG report.
  • Improvements in therapies for treating COVID-19 patients are helping to reduce hospitalization rates, lessen the severity of the disease, shorten recovery times and lower the mortality rate.
  • Eight experimental COVID-19 vaccines are in phase three clinical trials, the stage before a new drug application is potentially submitted to the Food and Drug Administration for approval. Some medical experts believe a vaccine will be delivered as soon as the first half of next year.

In addition to rising infection rates, political uncertainty has also weighed heavily on the minds of investors lately. More specifically, the upcoming presidential election has raised concerns about a potential change in tax policy and the possibility of a disputed election.

Proposed changes to the corporate tax code under a Biden presidency could represent a downside risk to earnings, according to our ISG colleagues. But, as noted in their late-September report, some political experts say that any such changes are likely to be phased in over several years and could be offset by greater spending on infrastructure and the removal of various tariffs. It’s also worth noting that since 1945 reported earnings for S&P 500 companies have generally trended upward even though the corporate tax rate has fluctuated (sometimes dramatically) over time, according to the report.

S&P 500 Earnings vs. US Corporate Tax Rate

Should we be concerned about the potential for a disputed election? In theory, yes. But, according to the ISG report, we’re not likely to experience one. A number of states, including some key battlegrounds, allow votes to be processed and counted well before Election Day. That means markets should have enough information on election night, or soon after, to gauge the likely winner, even if the official proclamation takes longer, reports ISG.

U.S. Sectors

Returns were negative across all but two S&P 500 sectors, Utilities and Materials.

Aside from the beleaguered Energy sector, Communication Services and Technology were the worst-performing sectors last month, which isn’t entirely surprising: When the market retreats, highflying sectors usually suffer disproportionately.

Tech-dominated growth stocks have largely outperformed value stocks in recent years, and that trend has only accelerated during the pandemic-induced downturn. In an uncertain environment, investors have been willing to pay a premium for shares of companies that are generating strong cash flow and expected to deliver faster-than-average profit growth in the future.

For what may be a brief shining moment, value stocks outperformed growth stocks in September, although they still declined. The Russell 1000 Growth Index fell nearly 5% for the month, ending its nearly yearlong winning streak over the Russell 1000 Value Index, which declined by nearly 3%.

Value investing is about identifying companies whose stock prices don’t fully reflect their fundamental worth, with the expectation that share prices will rise over time. Famed value investor Warren Buffett describes his approach this way: "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

One question on the minds of many investors is: What can we expect going forward with regard to growth versus value?

Some experts believe value stocks will outperform once economic activity normalizes in a post-pandemic era, according to the ISG report. Interestingly, an analysis cited in the report shows that the outperformance of value relative to growth is positively correlated with progress on the vaccine-development front.

Fixed Income

Returns across the U.S. bond market were flat-to-slightly negative last month, an unusual turn of events considering that traditional (inverse) relationship between stock and bond prices.

In past periods of market declines, investors may have flocked to bonds, particularly U.S. Treasurys, driving up prices and pushing down yields. Bond prices rise when yields fall, and vice versa. However, with bond yields already at historical lows — thanks in large part to the Federal Reserve’s pledge to keep interest rates lower for longer — it’s hard for them to fall much further, capping the upside for prices.

Interestingly, the relatively calm index returns in September masked the tug-of-war beneath the surface. Bond yields have been alternately pulled higher and pushed lower based on shifts in investor sentiment surrounding the prospects for additional fiscal stimulus and the outlook for economic growth. This resulted last month in essentially flat returns across the fixed-income market.

Despite recent low yields, we continue to believe that bonds play an important role in a diversified portfolio. We saw their ability to buffer steep stock market declines earlier this year. Indeed, despite its flat return in September, the broad U.S. bond market, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, was up by nearly 7% for the year-to-date period through last month, and by the same amount for the trailing 12-month period.

The Economy and the Fed

The U.S. economy continues to show signs of improvement, but the pace of recovery appears to be slowing:

  • High-frequency data, such as Apple and Google mobility data and OpenTable reservations, have mostly leveled off since June, after rebounding strongly in April and May, according to the ISG report.
  • Some key economic indicators have followed a similar trajectory: Retail sales, for instance, rose just 0.9% in July and 0.6% in August, following gains of 18.3% in May and 8.6% in June, according to the Commerce Department. The U.S. added 661,000 jobs in September, following larger gains in the four prior months, according to the Labor Department. The unemployment rate fell to 7.9%, dramatically lower than where it stood in April, but still a far cry from pre-pandemic levels. 

With another additional fiscal stimulus package likely to be pushed out until after the election, the fourth quarter will probably be softer than originally expected. As of Sept. 27th, ISG expected U.S. gross domestic product (GDP) to grow at an annualized rate of 4.1% in the fourth quarter and to contract by 3.7% for the full year.

ISG expects U.S. GDP to rise by 5.5% in 2021. Its forecast assumes that we’re likely to see continued positive developments on the health care front and unlikely to see a reinstatement of broad shelter-in-place mandates tied to rising infection rates.

Last month, Federal Reserve officials revised their economic projections to reflect a more upbeat view than they held in June. They noted that their outlook is based on “the stronger than expected rebound in economic activity over recent months” and the assumption that Congress will pass another substantial stimulus package soon. That assumption, of course, has been called into question in recent weeks.

Fed Chairman Jerome Powell has called for continued aggressive fiscal and monetary stimulus measures for an economic recovery that he says still has “a long way to go.”


As we learned during 9/11 and other difficult periods, the road to recovery can be winding and fraught. The risks we now face may contribute to the kind of market volatility we saw last month, but we don’t expect them to derail the current recovery. In fact, we expect to see a continued economic expansion that supports equity returns that are superior to cash and bonds.

For this reason, we recommend that clients remain invested. Indeed, earlier this year it may have been tempting to hunker down in cash or bonds but doing so would have come at a price. In the second and third quarters, stocks enjoyed strong gains that few could have anticipated in the depths of the market’s downdraft in March. Looking ahead, we see room for stocks to appreciate modestly between now and the end of the year, typically a strong seasonal period for stocks.

As always, if you have questions about the markets or your financial plan, don’t hesitate to reach out to your adviser. Checking in with your financial adviser can be helpful as we wind down this turbulent year and embark on the season to reflect on what really matters.

Invest well and stay healthy,

Kara Murphy, CFA

Chief Investment Officer

Important Disclosure

United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. The material is based upon information which we consider reliable, but we do not represent that such information is accurate or complete, and it should not be relied upon as such.

For clients with managed accounts, GS PFM has discretionary authority over investment decisions. GS PFM makes recommendations based on the specific needs and circumstances of each client. Clients should carefully consider their own investment objectives and never rely on any single chart, graph, or marketing piece to make decisions. Investing involves risk, and investments may lose value. There are no investment strategies that guarantee a profit or protect against loss.

GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances.

Economic and market forecasts presented reflect the judgment of Goldman Sachs Private Wealth Management Investment Strategy Group as of the date of this material and are subject to change without notice. Return expectations are based upon ISG’s capital market assumptions. They should not be taken as an indication or projection of returns of any given investment or strategy. Forecasts are estimated, based upon assumptions, and are subject to significant revision and may change materially as economic and market conditions change. We have not obligation to provide updates or changes to these forecasts.

Except as otherwise required by law, United Capital shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. Please contact your financial advisor with questions about your specific needs and circumstances. Equity investing involves market risk including possible loss of principal. All indices are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses and are calculated on a total return basis with dividends reinvested. Past performance doesn’t guarantee future results.

The information and opinions expressed herein are obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data is driven from publicly available information and has not been independently verified by United Capital. Certain statements contained within are forward-looking statements including, but not limited to, predictions or indications of future events, trends, plans, or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Opinions expressed are current as of the date of this publication and are subject to change.

Index Definitions

S&P 500 Index: A broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a capitalization-weighted, unmanaged index that is calculated on a total return basis with dividends reinvested. The S&P 500 represents about 75% of the NYSE market capitalization.

Russell 2000 Index: This index measures the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks; the index serves as a benchmark for small-cap U.S. stocks.

MSCI Europe, Australasia, and Far East (EAFE) Index: This index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada.

MSCI Emerging Markets Index: This index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of June 2009, the MSCI Emerging Markets Index consisted of the following 22 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

Bloomberg Barclays U.S. Aggregate Bond Index: This is a market capitalization weighted bond index of investment-grade, USD-denominated fixed-income securities.

U.S. High Yield Corporate: The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high-yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

U.S. Investment Grade Corporate: The Bloomberg Barclays U.S. Corporate Bond Index measures the investment-grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility, and financial issuers.

Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated, long-term, tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.

S&P 500 GICS Sectors Level-1: In 1999, MSCI and S&P Global developed the Global Industry Classification Standard (GICS) to offer an efficient investment tool to capture the breadth, depth, and evolution of industry sectors. GICS is a four-tiered, hierarchical industry classification system. It consists of 11 sectors, 24 industry groups, 68 industries, and 157 sub-industries. Companies are classified quantitatively and qualitatively. Each company is assigned a single GICS classification at the sub-industry level according to its principal business activity. MSCI and S&P Global use revenues as a key factor in determining a firm’s principal business activity. Earnings and market perception, however, are also recognized as important and relevant information for classification purposes and are considered during the annual review process.

Kara Murphy

Kara Murphy

United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.

Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.

Ready to start a conversation? We’re here to listen.


Tell us about yourself at no cost or obligation.

  • An introduction to an advisor
  • A personal conversation
  • Your questions answered

Confirmation success!

Thank you for your submission.

By submitting this information, you hereby authorize and request that PFM contact through any direct contact and any automated means, including but not limited to use of an auto-dialer, pre-recorded/artificial voicemail and SMS, and by email to discuss PFM’s products or services and you are consenting to receive certain materials from PFM by email or other means of electronic delivery. In addition, you acknowledge that PFM will use your information as described in its Privacy Policy and Terms of Use. PFM may share your information with other subsidiaries of The Goldman Sachs Group, Inc. and they may also contact you directly through any of the same means listed above.

To withdraw your consent to receive calls or to change your contact preferences, please call us at 1 (800) 796-3315. To stop marketing emails, follow the opt-out instructions in the email received. To revoke your consent to receive communications electronically, please contact your GS PFM team.