Market Review 9th September 2024

Everything you need to know, Simplified!

Markets last week

Summary

• A month known for challenging equity markets, September saw declines in the first week as recession fears mounted. US and European markets struggled while the UK held up better

• Declining inflation and a softening labour market helped bonds diversify risk and absorb equity volatility. Bond yields fell, led by short-dated US treasuries

• August jobs data showed fewer jobs created and downward revisions to previous months - but unemployment fell to 4.2%

• Stock markets declined, with technology and cyclical sectors leading the fall. Defensive sectors like consumer staples and healthcare held up better

• Bonds performed well in a busy week of issuance, coupled with strong demand - especially US high quality investment-grade corporate bonds

• Oil prices fell sharply due to demand concerns in the US and China and talks of increased output from Libya and OPEC+ (the organisation of leading oil-producing and oil-dependent countries)

• This week on Wednesday: US Consumer Price Index (CPI) data is expected to show inflation falling to 2.6%

• This week on Wednesday: The European Central Bank (ECB) is likely to cut rates to 3.5% as inflation decelerates.

---

Markets last week

The ‘September effect’

Regarded as a statistical anomaly, September is often a challenging month for equity markets, which is known as the ‘September Effect.’ True to form, the first week of September saw equity markets decline amid growing fears of a recession. While UK equities held up relatively well, US and European markets performed poorly.

The good news is that declining inflationary pressures and a softening labour market have allowed bonds to diversify risk and absorb equity volatility, playing their typical role in multi-asset portfolios. Bond yields fell, led by US treasuries as the labour market showed further signs of softening.

US labour market

US Federal Reserve (Fed) chair Jerome Powell recently described the softening in the labour market as ‘unmistakable’ and the jobs data has been in the focus of policy makers and investors alike, becoming a key driver of sentiment. The data for August, released on Friday, was a little weaker than anticipated with some mixed signals. There were downward revisions to the previous months’ payrolls and fewer jobs were created than anticipated in August. Simultaneously, the unemployment rate fell to 4.2%. Other economic data over the week was broadly positive suggesting that recession fears (and pricing of such, particularly in rates markets) may be overstated.

Equities

Stock markets declined over the week with the technology sector, particularly in the semiconductor space, leading declines. Cyclical sectors such as energy, materials and industrials were weak while more defensive sectors like consumer staples and healthcare held up relatively well. Interest rate sensitive sectors such as real estate and utilities conserved capital supported by falling bond yields. On a regional basis, Europe, the US and Japan performed poorly while the UK and emerging markets proved more resilient.

Bonds

Bonds performed well in a busy week of issuance in both Europe and the US. In fact, according to Bloomberg, US high quality investment grade corporate bonds were sold at the fastest two-day pace ever last week amidst the third biggest volume of issuance. It’s reassuring to see such strong demand in a volatile week for risk assets.

Base yields performed well led by US treasuries. The US yield curve bull steepened (when short-dated yields fall more than long-dated yields) as the market ramped up bets on a more aggressive interest rate cutting cycle. The two-year treasury yield fell from 3.92% to 3.69%.

Commodities

Oil fell sharply with West Texas Intermediate (WTI) declining 8.0% and Brent 9.8%, wiping out year-to-date gains. The decline was largely due to concerns over demand in the US and China as the economic outlook soured. Adding to the negative sentiment were talks of a potential deal to restore Libya’s oil production and the possibility of OPEC+ countries increasing output in October. Although the group has since halted plans to boost production, the reversal was not enough to turn sentiment.

---

The week ahead

Wednesday: US CPI

Our thoughts: Inflation is no longer the main concern of policymakers: it has fallen broadly in-line with the 2% target in the second half of this year. August annual headline inflation is anticipated to fall to 2.6% from 2.9%. Core inflation is expected to remain steady at 3.2%.

Thursday: ECB rate decision

Our thoughts: The ECB are likely to cut rates for the second time, bringing the deposit rate down to 3.5% as inflationary forces continue to decelerate.

---

Your weekly market review was powered by Canaccord Genuity Wealth Management (CGWM)

---

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from them, will be affected by movements in exchange rates. This effect may be unfavourable as well as favourable. Past performance and future forecasts figures are not a reliable indicator of future results.