What’s trending in the market:
September Anomaly: September is known to be the period of the year were returns on portfolios are always in the red. Historically, the stock market tends to decline or perform some corrections when September is due. This was the case last month, where stocks worldwide dropped sharply and global indices saw decline exceeding the 5% mark. The reasons for this decline will be discussed below.
Risks arousing from China: China’s Evergrande group helped spark volatility across markets when it announced its ongoing Debt crisis. The Chinese giant shocked global markets when it announced that it was struggling to maintain its $300 billion debt and that it can’t fulfill its current debt obligations. The Chinese government announced that it was not going to intervene in order to help the mega developer overcome its current liquidity crisis.
Inflation: Inflation data released in September have showed that the anticipated increase in inflation level was less than originally forecasted by economists, which in turn was absorbed as positive news by individuals. However, the news was absorbed by investors as indication that the fed will move ahead with its taper plans with more flexibility. This in turn weighted down on markets as the decrease in stimulus signals less liquidity in markets.
US government debt ceiling: US Treasury secretary has warned that the US government would run out of cash by 18th of October, and a deal to raise the debt ceiling was not reached between republicans and democrats in the senate. This in turn further fueled the selloff in global stocks as fears of a federal default spread across the market.
Threats of a slow in economic recovery: Economic data releases across September were disappointing to investors, which in turn fueled the return of the idea that economic growth was slowing in the markets, as the US consumer confidence dropped in September, and initial jobless claims were higher than projected.
Market performance and reactions:
Dow Jones Industrial Average
The Dow Jones Industrial Average started August with a negative note, falling from 35,475 towards a low of 3,613 due to the massive selloffs that have stun equity markets over the month of September. The index tried to push back and erase the gains of the month as the last trading week of September approached, rising 1400 in the process, but ultimately failed to keep momentum and declined back to a level of 33,833.
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Nasdaq Composite
The beginning of August wasn’t so kind to the Nasdaq, just like any other index. The index started the month on a negative note, reaching a low level of 14,530. However, as dip buyer focused on Tech stocks, mainly giants as Apple and Microsoft, the index tried to gain momentum again, gaining around 500 points. However, as the global selloff deepened, the index fell again to a low level of 14,444.
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S&P 500
The S&P500 index started the month on a negative note as well, declining to a low level of 4,305 as the selloff in global stocks took pace. The index tried to rebound like the Nasdaq, gaining around 260 points but eventually fell again to reach a low of around the previous level of 4,305.
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VIX Index
The VIX, also known as a gauge of fear among market participants, has been falling over the past couple of months as the economic recovery is taking place and investor’s confidence is boosting markets. However, with the global selloff in stocks, the index started rising again, reaching a high level of 25.71, a level that was not reached since the 12th of May, indicating that investors are getting more cautious regarding market conditions.
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Yield Curves
Yields on 10 year notes have spiked throughout September, reaching a new high for the year of 1.54%. Technology stocks dropped sharply as a result of this increase in Yields, as investors reflect higher debt funding costs for such companies due to the increase in yields.
Year to date recap:
|
Index |
YTD return |
|
Dow Jones Industrial Average |
10.58% |
|
Nasdaq Composite |
12.11% |
|
S&P500 |
14.68% |
|
VIX |
-3.08% |
*As of September 30, 2021.
Conclusion:
September came in typical fashion this year. Investors were braced for a volatile month of trading, and September didn’t disappoint. The large selloffs in global stocks poised to be great opportunities for dip buying investors and an opportunity to rebalance portfolios towards a higher weighting in equities.
October is set to be closely watched by investors worldwide, as any opportunity towards a recover in global indices would be viewed as the right opportunity to get back and build up on the September decline. Investors will be anticipating the resolutions about the us Debt ceiling, any fed actions regarding the its asset purchasing program and economic data releases relating to the jobs market.
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