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As we warned readers, the month of September is living up to its terrible reputation on the stock market, with losses approaching 8% in the United States and Europe.
Investors remain pessimistic despite rising prices and aggressive monetary policies: this week has been particularly unpleasant. Indexes have been crushed, and safe haven assets are becoming scarce (FYI, cash is paying at the bank for the first time in years).
The Bank of England’s emergency decision to buy back British debt was undoubtedly the most famous occurrence. The announcement of a costly mini-budget to assist the economy devised by the new Truss administration, which featured significant tax cuts, destabilized the market.
This expenditure did not go over well with investors when interest rates are increasing to combat inflation. The multiple headwinds continue to weigh hard on the stock market.
Investors would be happier if they did not have equities in their portfolios! The market downturn affected all sectors and capitalizations equally.
Over the last two weeks, investment bank research has been noticeably sour. “More pain ahead” is the overarching theme, filled with specific warnings about an impending financial collapse.
This is not restricted to a few institutions; Bank of America, Barclays, Credit Suisse, Citi Bank, Deutsche Bank, Goldman Sachs, JP Morgan, Societe Generale, and others are all stating something similar.
Analysts at Goldman Sachs Portfolio Strategy Research stated that US markets have yet to bottom and are awaiting four indications to do so: 1) low valuations, 2) stalled growth, 3) inflation peaking, and 4) investors more strongly positioned out of the market.
Goldman stated that none of these market indicators are currently present, signaling lower lows in the coming weeks or months.
Speaking of inflation, Truflation shows inflation at 8.68%. It is down from the peak.
BlackRock reported, “Many central banks [including the Fed] aren’t acknowledging the extent of recession needed to rapidly reduce inflation. Markets haven’t priced that so we shun most stocks.”
We could continue, but you get the message that the markets are looking like DOOM and GLOOM.
Right now, 2023 is looking very BEARISH, but there may be some opportunities if we wait and look in the right spots.
Remember that with the rain comes to the sun, so maintain a level mind and play the long game.
Looking ahead to next week’s events, there is a full slate of Federal Reserve Bank speakers, with the widespread assumption that the central bankers would emphasize the objective of not withdrawing from restrictive monetary policy and higher interest rates too soon.
The September employment data, due at the end of the week, will be the highlight of the economic calendar.
Prior to that, on Tuesday, there will be the JOLTS job vacancies survey and the ADP nonfarm payrolls report (Thursday). Investors will also be watching the precise minutes of the most recent ECB meeting, which will be issued on Thursday.
A higher unemployment number may tell the Fed that the rate increases are working. I believe the Fed wants to see a 5%+ rate of employment before they stop increasing rates.
The flurry of investor meetings for stock pickers includes presentations by Sinclair Broadcast Group (SBGI), Illumina (NASDAQ: ILMN), Duke Energy (NYSE: DUK), Hasbro (NASDAQ: HAS), and Box (NYSE: BOX). Keep an eye out for updates from Google (GOOGL), which has a Pixel hardware event scheduled.
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Irving Wilkinson
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