Investing.com -- The S&P 500 gained 2.1% on a total return basis in September, marking its best performance for the month since 2013 and its first positive September in five years, Bank of America (NYSE:BAC) said in a Tuesday report.
This also marked the fifth consecutive month of gains and the 10th positive month in the past 11 months.
Lower interest rates contributed to gains across all major asset classes, with gold leading the way at +4.6%.
Long-term Treasuries also outperformed stocks, rising by 2.4%, while investment-grade corporate bonds increased by 1.9%, and cash gained 0.4%.
International equities lagged behind the S&P 500 in local currency terms (+1.6%) but outpaced it in USD terms (+2.7%) as the dollar weakened. The MSCI Emerging Markets Index saw a strong jump of 6.4% in USD terms, driven by China, which surged 23.5%—its second-best monthly return in history, BofA notes.
In the third quarter, the S&P 500 climbed 5.5%, its best Q3 performance since 2020. However, the real momentum was within the market, with the S&P 500 Equal Weighted (SPW) jumping 9.4%, its best Q3 since 2010.
“It was also the best 3-mo. outperformance by SPW since Dec. 2022,” according to BofA. “67% of stocks in the S&P 500 outperformed the index in 3Q, in the 98th percentile of history for 3-mo. breadth. Historically, only 31% of stocks in the S&P 500 ever outperformed the index.”
By sector, Energy was the only to fall, down 3.1%, as WTI oil dropped 12.5%. Despite weak fundamentals, BofA’s commodity strategists noted that positioning in oil had fallen to the lowest levels since at least 2011.
Rate-sensitive sectors emerged as the biggest winners, led by Utilities (+18.5%) and Real Estate (+16.3%), while Industrials (+11.2%) and Financials (+10.2%) also saw strong gains.
Meanwhile, the Russell 1000 Growth Index (+2.8%) outperformed the Value Index (+1.4%) in September. However, for the third quarter, Value outpaced Growth (+9.4% vs. +3.2%) for the first time since the fourth quarter of 2022.
Despite the Federal Reserve’s 50 basis-point cut, the Russell 2000 lagged behind the Russell 1000 in September, though it led for the quarter thanks to a strong July rally.
“We remain tactically cautious on small caps and have favored mid-caps, which outperformed both size segments last month after performing in the middle in 3Q,” BofA strategists said.
Historically, mid-caps have led small caps during “Downturn” phases of BofA's Regime Indicator and following the start of Fed cuts. Mid caps also currently benefit from better revision and guidance trends.