Market update: September 2022

In September, confidence visibly took a hit, mainly due to the recurring interest rate hikes and Vladimir Putin's attempts to annex four Ukrainian regions. The stock, bond, currency, and commodity markets experienced a period of severe volatility, which may indicate panic selling. 

The Federal Reserve (FED) of the United States also raised the interest rate by 0.75 percentage point to 3.00% - 3.25%. The FED expects to continue raising the rate to a level of 4.50% to 4.75% next year. Bond yields in the US, UK, and Germany rose to a record high for this decade. 

The budget plan of the new government of the United Kingdom caused additional concern, mainly due to substantial proposed tax cuts for businesses and high earners. This resulted in a surprising action by the Bank of England (BoE) – to maintain order in the bond market in the UK – by purchasing government bonds, thereby curbing the rising prices. 

Emerging market stocks underperformed in September, as pressure is being exerted on their expected economic growth. That pressure comes from their own falling currencies and the interest rate hikes in developed countries. 

Best fund performance in September 2022: UBS (Lux) Money Market Sustainable Fund -0.02%

Central banks continue to raise interest rates to control inflation. At the same time, tensions are escalating due to Russia's ambitions in Ukraine.

Developed country stocks had a difficult month due to the interest rate hikes and increasing tension. The S&P 500 ended the month down 9.35%, the biggest monthly (percentage) drop of the year.

The FED meeting concretely resulted in two developments: a new rate hike in the US of 0.75% (to 3.00% - 3.25%) and the indication of more rate increases in 2023. The Federal Reserve again emphasised that curbing inflation is the highest priority for the central bank of the United States, even if this has a negative impact on the markets in the short term.

European stocks followed their American counterparts. The Stoxx 600 index recorded a 6.6% loss over the month. In the United Kingdom, the new government's budget plan caused additional tension, which even led to an action by the Bank of England to maintain order in the UK bond market. 

For Europe, there was a bright spot in September. The falling price of crude oil (minus ~10%) and gas (minus ~20%) gave Europeans – who are suffering from rising inflation – some breathing space.

Emerging market stocks performed less well because growth forecasts stumbled due to a strong US dollar and fear of a recession. Additionally, China remained a major concern for investors worldwide because their zero-Covid policy continuously causes growth problems. India, which seemed impervious to the global downturn in recent months, was nevertheless affected during the month by the diminished confidence in the market.

US and European 10-year yields rose sharply, to the highest level of this decade, by 67 basis points in the US and 57 basis points in Germany, thanks to the perseverance of global central banks in fighting inflation by implementing interest rate hikes. High-yield bonds and corporate bonds also recorded negative returns, -2.09% and -3.58%, with an increasing risk premium during the month due to the growing risk of a recession and rising prices. Following the ECB (European Central Bank) meeting in October, the money market yield is expected to rise to a level of 1.5% in the following month. 

What does October have in store for us? 

- The quarterly results of companies are crucial to reduce the fear of a recession in the market.

- The outcome of the ECB meeting which may lead to new interest rate hikes. 

- Ukraine's struggle to reclaim the territories conquered by Russia will dominate the news flow.

What does all this mean for my plans?

Do not let the market disrupt your long-term goals. Vive's investment strategies take the declining market into account. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing in periods like this is crucial to take advantage of falling markets.

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