Historically, September has proven to be a poor month for global equity markets, and 2023 has been no exception, with the majority of major global equity indexes posting losses on the month, particularly in the US, which had thus far been among the strongest performers of the year.
But while equities didn’t deliver good news this month, there were significant positive developments on issues that have dominated financial discussion throughout 2023.
The performance of the S&P500 and NASDAQ indexes have been a boon for investors this year, with the components of both indexes featuring prominently in every well-diversified portfolio. However, for the second consecutive month, both indexes declined with a more pronounced fall in September as the S&P500 declined over 5% and the NASDAQ over 6.5% as of September 28th. This is not an unexpected outcome, as historical data shows September to be on average, the worst month for equity performance by a significant margin.
This poor performance was also seen in Europe, with the STOXX 600 down over 2% led by declines in Germany and France. In Asia, there were slight declines in the Nikkei 225, Hang Seng Index and SSE Composite Index, but the UK proved to be a bright spot in September despite its struggles this year with the FTSE100 up over 2% in September, meaning the FTSE is now marginally up year-to-date. While this month has been disappointing, the data suggests room for optimism heading into the fourth quarter, which historically has been a positive quarter for equities.
On a positive note, there were more signs of inflation returning to normal levels, with the UK again surprising by reporting in September that inflation had declined 0.1% in August to 6.7% when economists had forecasted a rise to 7%. The Eurozone also continued to make progress, with a 0.1% drop to 5.2%, marking four straight months of decline. The US reported a 0.5% rise in inflation, but this isn’t a significant concern given their inflation figure is significantly lower than the UK and Eurozone at 3.7% as of September. Still, the Federal Reserve must remain vigilant with its interest rate policy moving forward to avoid inflation returning to troubling levels.
Confidence in inflation returning to normal levels was underlined by their respective central banks’ freezing of interest rates across most major economies. The Federal Reserve opted to hold interest rates in September. Still, it indicated they expect one more hike to occur before the end of the year and that interest rates are likely to stay higher for longer than many expect. The Bank of England narrowly voted in favour of their first interest rate freeze since they began hiking to hold their interest rate at 5.25% on the back of the decline in inflation previously mentioned. The European Central Bank went a different route with a 0.25% hike, marking the 10th straight increase, but signalled that it expects this hike to be its last as concerns about the impact on the economy begin to mount.
The global economy has been more resilient than forecasted in the face of rising interest rates, with the IMF forced to revise forecasts upwards after encouraging data, particularly concerning consumer spending, which has remained strong. These summer revisions included projecting that the much-maligned UK economy would avoid a recession and increasing the probability of a ‘soft landing’ in the US in which they would successfully tackle inflation without causing excessive job losses. As the year has progressed, this sentiment has begun to shift slightly with serious concerns in Germany, which was dubbed ‘the sick man of Europe’ by the Economist, with both the IMF and OECD predicting Germany to be the worst performer in the world’s leading economies in 2024 after underperforming expectations this year.
Data released this month in the UK also suggests the economic environment is deteriorating, with weakening service sector activity and a manufacturing contraction increasing the chances of a recession. The true impact of the interest rate hikes on the global economy may only become apparent over the next year as central banks try to control inflation while not putting too much pressure on the economy. With rates now approaching peak levels, the central banks will have the flexibility to consider rate cuts to relieve economic pressure in 2024.
Our September Blogs Focus
This month’s newsletter covers a range of subjects, from Charting the Course: The Global Movement of Millionaires in 2023 to Sailing into Tax Savings and the Resilience of the US Stock Market. You can find these blogs by clicking on the links below.
Charting the Course: The Global Movement of Millionaires in 2023
Sailing into Tax Savings
Resilience of the US Stock Market