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September is generally a bad month for investors, with the S&P 500 falling on average about 1%, according to Howard Silverblatt, senior analyst at S&P Dow Jones Indices.
But this September, it has fallen by more than 9%.
That makes it the worst September since 2002, when it fell 11%.
It’s another grim milestone in a year when the stock market seemingly went from bad to worse and hurt nearly every investor, from those contributing to their 401(k) accounts to portfolio managers overseeing hundreds of billions of dollars. dollars. With so much turmoil over the past quarter, month, and even week, the odds of the stock market ending 2022 with a bang have all but evaporated.
At the end of September, all three major indices were firmly in bearish territory, meaning they were down more than 20% each from their highs.
The S&P also posted the worst year-to-date performance in 20 years. The tech-heavy Nasdaq is already down more than 30% this year. The Dow, which fell 9% this month, erased all the gains he had made over the past two years, falling back to where he was in November 2020.
As we enter the last three months of the year, perhaps the best thing to do with money is to put it under the proverbial mattress. Or at least in short-term Treasury bills, which yield barely 3.3%.
“Literally, the only bull market in the world right now is the cash bull market,” says Julian Emanuel, head of portfolio strategy at Evercore ISI.
Wall Street is uneasy about high inflation and how central banks are fighting it
It’s been a year of high inflation, and Wall Street’s opinion of it has only gotten worse over the past month.
There are worrying signs that inflation is taking root, which will make it harder to contain. On Friday, the Federal Reserve’s favorite inflation gauge, the government’s personal consumption expenditure index, showed a bigger-than-expected increase in August.
Then there is what central banks are doing about the problem and what their actions might result from. In September, many of them raised interest rates aggressively, including the Bank of England, the European Central Bank and, of course, the Federal Reserve.
“We have never had a case like this, at least in the past few decades, where so many central banks have tightened monetary policy simultaneously,” said Ruchir Sharma, chairman of Rockefeller International.
At the end of the month, on September 21, the Fed again raised interest rates another three-quarters of a percentage point, and Fed Chairman Jerome Powell said he and his colleagues “expect that current increases will be appropriate”.
Wall Street expected a rate hike of this magnitude in September, but many investors seemed caught off guard by the Fed’s forecast. They had hoped that inflation had peaked and that the Fed might slow the pace of interest rate hikes in the not too distant future. But once they started to fight the seriousness and determination of the central bank, there was another hard sell.
John Stoltzfus, chief investment officer at Oppenheimer and Co., marveled at the market response.
“It felt a bit like a tantrum,” he says. “We weren’t looking for a short-term pivot.”
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The Fed appears to be following a new mantra, which Powell unveiled during a speech in late August: “We will keep going until we are satisfied the job is done.”
Restoring price stability will take some time, Powell said in that same speech, noting that the Fed’s policies will “also hurt households and businesses.”
And that really scared Wall Street.
The Fed is raising interest rates at the fastest pace in a generation, and as the cost of borrowing becomes more expensive, the pain intensifies.
For households, buying a home is becoming more expensive, with the average rate on a 30-year fixed-rate mortgage recently hitting 6.7%, almost double what it was in January. On the business side, Meta, Facebook’s parent company, has announced that it will start laying off workers.
Looking towards the end of the year, and beyond
Now Wall Street is wondering if the actions of the Federal Reserve will go so far as to trigger a recession.
Michael Purves, CEO of Tallbacken Capital Advisors, says markets haven’t gotten used to the Fed’s new approach, which is a stark departure from a long period of keeping interest rates rock-bottom.
“They did a full, very aggressive 180 in less than 12 months,” he said. “That kind of abrupt change from the most important central bank in the world means you’re going to have volatility.”
Recently, there have been wild and disorienting swings in stocks, bonds, commodities and currencies. The US dollar is incredibly strong against other major currencies, and this is affecting markets around the world.
“It’s not necessarily a reflection of the strength of the United States,” says Sharma of Rockefeller International. “It’s just that the United States is the predominant financial superpower in the world, and people are rushing to hold their assets in US dollars.”
But the strength of the dollar has been a drag on the global economy, as the currency is used for many transactions.
The Fed is studying inflation data, and next week’s jobs numbers from the Labor Department will be key to looking ahead to the end of 2022.
Meanwhile, companies reporting quarterly results have shown that the problems of 2022, and in some cases 2021 and 2020, aren’t going away anytime soon.
Nike’s sales slumped in China last quarter and the apparel maker continues to deal with messy supply chain issues, it said on Thursday. He also noted that he had too much inventory.
FedEx, which Wall Street considers an indicator of the broader economy, said it has been struggling lately and is raising prices. Apple would manufacture fewer iPhones.