S&P 500 Achieves Strongest September Performance Since 2013

In September, the S&P 500 experienced a gain of 2.1% on a total return basis, marking its strongest performance for the month since 2013 and its first positive September in five years, according to a report from Bank of America. This marked the fifth consecutive month of gains and the tenth positive month out of the last eleven.

Lower interest rates played a significant role in boosting performance across all major asset classes. Gold led the way with a notable increase of 4.6%. Long-term Treasuries also outperformed stocks with a rise of 2.4%, while investment-grade corporate bonds increased by 1.9% and cash gained 0.4%.

International equities trailed the S&P 500 in local currency terms with an increase of 1.6%, but outperformed it in USD terms with a gain of 2.7%, driven by a weaker dollar. The MSCI Emerging Markets Index saw a remarkable jump of 6.4% in USD terms, largely influenced by a 23.5% surge in China—its second-best monthly return in history.

In the third quarter, the S&P 500 rose by 5.5%, marking its best Q3 performance since 2020. However, the most notable momentum was seen in the S&P 500 Equal Weighted Index (SPW), which jumped 9.4%, its best Q3 performance since 2010. According to Bank of America, “67% of stocks in the S&P 500 outperformed the index in Q3, reaching the 98th percentile in terms of three-month breadth.” Historically, only 31% of S&P 500 stocks have outperformed the index.

By sector, Energy was the sole decliner, falling by 3.1% as WTI oil dropped 12.5%. Despite weak fundamentals, Bank of America’s commodity strategists highlighted that oil positioning had diminished to its lowest levels since at least 2011. In contrast, rate-sensitive sectors thrived, with Utilities leading at +18.5% and Real Estate following closely at +16.3%. Industrials saw an increase of 11.2%, and Financials gained 10.2%.

In September, the Russell 1000 Growth Index outperformed the Value Index, gaining 2.8% compared to 1.4%. However, for the quarter, Value beat Growth for the first time since Q4 2022, with an increase of 9.4% versus 3.2%. Despite a 50 basis-point cut by the Federal Reserve, the Russell 2000 lagged behind the Russell 1000 in September, although it led for the quarter thanks to a strong rally in July.

Bank of America strategists expressed caution regarding small-cap stocks, favoring mid-caps that outperformed both segments last month and performed strongly in Q3. Historically, mid-caps have led small caps during periods of downturn as indicated by Bank of America’s Regime Indicator, and they are currently benefiting from improved revision and guidance trends.