Global markets finally wobbled after a five-month winning streak as most major equity benchmarks lost ground in September. The tech-heavy Nasdaq 100 Index fell by over 10% in three days in early September but recovered somewhat to end the month 5.7% lower. Despite the September wobble, the Nasdaq is still up 31.6% YTD – well ahead of the S&P 500 (5.6% YTD) and the Nikkei 225 (+2.8% YTD in US dollar terms), which are the only other two major equity markets in positive territory for 2020.
There was no clear catalyst for the September declines, although the continued inability of US Congress to agree to new fiscal stimulus measures and a new wave of COVID-19 infections in Europe likely contributed. Emerging markets (EMs) fared slightly better than developed markets (MSCI EM -1.8% MoM vs. MSCI World -3.6% MoM), with Asian auto manufacturers and semiconductor companies performing particularly well for the EM index. Brent crude oil fell 9.6% MoM, making the S&P 500 Energy sector the worst performer for September (-14.5% MoM) as Persian Gulf exporters started to discount their crude prices as the end of the busy US summer driving season contributed to lacklustre oil demand.
The US dollar strengthened against most major currencies in September, particularly the British pound (-3.4% MoM) as the UK embarked on what appears to be another round of acrimonious talks over the final terms of its exit with the European Union (EU). The UK’s threat to rewrite some previously agreed terms of its divorce accord had the EU threatening legal action with just months left before the UK’s transitionary agreement with the EU runs out at the end of the year.
The US Federal Reserve’s (Fed’s) Federal Open Market Committee’s (FOMC’s) mid-month meeting delivered nothing in the way of additional stimulus, but the post-meeting press conference confirmed that Fed members expect the current zero interest rate environment to last at least 3 years. Interest rate markets’ muted reaction to that statement reflects an already high expectation of monetary policy support, and US 10-year government bond rates ended the month roughly where they started (0.7%).