History tells us that September is the worst month of the year for the stock market, but things got worse again as the US market fell for three consecutive weeks. Analysts have warned of worse to come, with stock prices falling by a total of 50% and global wealth potentially destroyed.
Yesterday, the Dow Jones index fell nearly 400 points in its worst day since March. The S&P 500 fell 1.47%, but the tech-heavy Nasdaq outpaced that, dropping almost 7% this month alone.
That would be a disaster, as the United States faces mounting economic concerns.
New home sales fell 8.7% in August, according to the Commerce Department, while the Conference Board reported that consumer confidence expectations had fallen to recession levels.
The big concern is that the U.S. Federal Reserve will have to keep raising interest rates as it tries to rein in inflation.
The Federal Reserve kept interest rates unchanged at 5.5% in September, but this was described as a “hawkish hold” after Chairman Jay Powell warned of further rate hikes.
Jamie Dimon, CEO of top US banker JP Morgan, has warned that interest rates reaching 7% could hurt markets and trigger a major global recession.
At the same time, bonds have returned as much as 6% a year, the highest since 2007, giving investors a decent return without the risk of investing in stocks.
“Investors remain nervous and nervous about what rising bond yields will mean for the economy, the stock market and the Fed,” said Sam Stovall, chief investment strategist at CFRA Research.
Chris Beauchamp, chief market analyst at trading platform IG, said the Fed’s “longer on interest rate” rhetoric is persuading investors to exit high-risk assets such as stocks. “September’s reputation as one of the worst months for stocks has been reinforced.”
Pierre Veret, technical analyst at ActiveTrades, said investors’ risk appetite continues to decline everywhere due to the impact of prolonged inflation.
Veillet added that many are also worried about a possible U.S. government shutdown after Congress failed to pass a short-term spending bill. “This will further reduce confidence in the country’s credit rating and economic outlook.”
Investors are also concerned about China after troubled property giant Evergrande defaulted on £450m of debt repayments, casting a shadow on the world’s second-largest economy. There is. “Dark clouds continue to loom for investors,” Veilet said.
So far, Britain has been spared the worst of the massacre. London’s blue-chip benchmark FTSE 100 index is actually up 2.2% so far in September.
It remains stable today. Why?
Read more: Stock market reaches ‘spitting point’ as high interest rates cause severe 50% crash
Last week, the Bank of England surprised and delighted investors by keeping interest rates at 5.25%, suggesting that interest rates had reached an all-time high. That certainly helped.
The FTSE 100 is often considered a “defensive” index, as it contains many solid, traditional stocks from the banking, mining, tobacco and insurance sectors.
These companies are now paying dividend yields of 7% or 8%, and bond yields are commensurate.
In contrast to the US, the FTSE 100 hasn’t risen much recently, so a cynic might say it won’t fall much.
However, Mr Beecham warned that rising US interest rates and a deteriorating economic outlook were a dangerous cocktail for the FTSE 100 as well.
Victoria Scoler, head of investments at Interactive, said investors were “nervous” and the pound was heading for its worst month since last autumn’s mini-budget debacle. “This reflects the UK’s growing recession risk as rising borrowing rates weigh on the economy.”
As always, some intrepid investors will view today’s struggles as a buying opportunity.
Mathieu Lacheter, head of equity strategy research at private bank Julius Baer, said September’s woes may just be a boost before a year-end stock market rally.
As 2023 draws to a close, investors will likely expect a rate cut in 2024. “Since the early 1970s, there is evidence that stock returns tend to be better after the last rate hike.”
But even Ratcheter urged investors to stick to larger companies and “defensive” stocks to deal with the ongoing turmoil.
Things could get worse before they get better. Much worse. Especially in the US.