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September may be historically infamous for poor stock returns, but this year the month behaved well. According to moneychimp.com, a consensus carried out from 1950 to 2016 has revealed that September ended up offering positive returns in 29 years and negative returns in 38 years, with an average return of negative 0.67%, which is worse than any month.

But the S&P 500 based ETF (SPY - Free Report) and Dow Jones-base fund (DIA - Free Report) added about 2% and 2.2%, respectively and Nasdaq-100-based ETF (QQQ - Free Report) shed about 0.3%, in the last one month (as of Sep 29, 2017). Let’s find out which events actually drove the broader market in September.

Energy Rally

Energy shares gained ground in the month on reduced supply glut worries and improvement in the demand scenario. The possibilities of OPEC discussing the extension of the output cut deal and International Energy Agency’s (IEA) upgrade of the global oil demand estimateand OPEC output decline in August for the first time in five months led to this rebound.

Moreover, Turkey gave hints of stopping Kurdish crude import, which pushed the space to the bull territory in late September. WTI crude ETF (USO - Free Report) and (BNO - Free Report) were up 8.3% and 7.9% in the last one month (as of Sep 29, 2017) and Energy Select Sector SPDR ETF XLE (XLE) added about 10.2%.

Tax-Reform Unveiled

At the end of the month, Trump revealed his much talked-about tax plan, suggesting comprehensive tax cuts for individuals and corporations. Some of the key suggestions are a cut in the corporate tax rate to 20% from 35% and slashing of the number of individual tax brackets to three from seven. The proposal will now be studied and perhaps altered in the coming days. The broader market reacted moderately to the upside on this proposal as there is still a lot of uncertainty.

Fed Favors Finance Rally

The Fed turned super-hawkish in its September meeting. Though the central bank acknowledged inflation worries, it surprised the investment world by announcing that it will start winding down its mammoth $4.5-trillion balance sheet of Treasury securities and mortgage-backed assets from October (read: Best ETF Strategies for a Hawkish Fed).

Such hawkish hints pushed up bond yields and favored financial stocks which perform well in a rising rate environment. Financial Select Sector SPDR ETF (XLF - Free Report) (XLF - Free Report) and SPDR S&P Bank ETF (KBE - Free Report) (KBE - Free Report) added about 5.2% and 8.5% in the last one month (as of Sep 29, 2017).

Merkel’s Feeble Win

Angela Merkel’s right-wing Alternative for Germany (AfD) party won 1-in-8 votes in the German election in late September. However, her conservative CDU/CSU bloc witnessed “its lowest support in almost 70 years.” This indicated ebbing political power of Merkel. Risk-off trade sparked and safe-haven ETF SPDR Gold Shares (GLD - Free Report) (GLD - Free Report) gained in the initial phase and mid of the month, but finally lost its strength to Trump’s tax reform plans. The fund lost about 3.4% in the last one month (as of Sep 29, 2017).

North Korea Tension Spikes

Along with Merkel’s weak victory, renewed tensions between North Korea and U.S. president Trump and their exchanges of incendiary rhetoric flared up war fears. All shocking and unwanted activities kept the broader market edgy and boosted quality ETFs likeiShares Edge MSCI USA Quality Factor ETF QUAL, which was up about 2.7% in the month (as of Sep 29).

How Did Currency World Behave?

Both the Fed and some upbeat economic data helped the otherwise struggling greenback in September.PowerShares DB US Dollar Bullish ETF (UUP - Free Report) was up more than 0.6% while CurrencyShares Euro ETF (FXE - Free Report) (FXE - Free Report) lost about 0.8% on Merkel’s less-than-expected vote gains.

CurrencyShares British Pound Sterling ETF(FXB - Free Report) (FXB - Free Report) however delivered a superb 3.6% as Bank of England (BoE) officials are now bullish on the economy. A senior Bank of England official pointed to the possibility of a rate hike in the coming months for the first time in more than a decade (read: BoE Turns Hawkish: ETFs to Benefit).

Small-Cap Outshines Large-Caps

As the greenback and geo-political risks rose, investors turned to domestically focused small-cap funds. After all, U.S. manufacturing touched a six-year high. And the U.S. economy grew an annualized 3% in the second quarter of 2017, above a preliminary reading of 2.6% and beating market expectations of 2.7%. Small-cap fund iShares Russell 2000 ETF (IWM - Free Report) (IWM - Free Report) added about 6.3% in the month (read: Small Cap ETFs & Stocks Crushing Russell 2000).

Tech Crash and Recoup

On overvaluation concerns, tech stocks plunged on Sep 25 with heavy sell-offs seen in some Internet and semiconductor equities but recovered from the malaise soon. First Trust Dow Jones Internet ETF FDN) gained about 1.8% in the month (as of Sep 29).

Hurricane Irma Hit Florida

Hurricane Irma caused severe destruction in Florida in early September.The cost of the storm varies from analyst to analyst. As per the guardian, “the economic cost of Hurricane Irma could rise as high as $300 billion” as it ravaged homes, businesses and farms on its way up. Among the ETF beneficiaries were iPath Pure Beta Livestock ETN LSTK and PowerShares DB Agriculture ETF DBA and PowerShares Dynamic Building & Construction ETF PKB (read: Irma Aftermath Puts These ETF Areas in Focus).

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