Making sense of the forces driving global markets |
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Stock markets around the world slumped on Tuesday while bond yields rose and gold hit a new high, as investors moved into "stagflation" trades against a backdrop of rising worries over tariffs, inflation and deteriorating government finances. More on that below. In my column today, I look at the so-called 'September effect' in U.S. and other stock markets. History shows September is by far the worst month of the year for equities - will this year be any different? I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. |
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- STOCKS: Wall Street indexes end between 0.55% and 0.8% lower, Europe falls much more, Asia not as much.
- SHARES/SECTORS: U.S. real estate sector slumps 1.7%, biggest fall in a month. Nvidia shares lowest since July 23, off 8% since Q2 results, Kraft Heinz shares tumble 7% as company says it will split.
- FX: Dollar rallies broadly, dollar index +0.6%. Sterling slumps 1.1%, biggest decliner across global FX today, as UK fiscal fears snowball.
- BONDS: Long-dated yields spike, curves steepen. UK 30-year gilt yield above 5.70% for first time since 1998, French equivalent the highest since 2009.
- COMMODITIES: Gold leaps to record high of $3,540/oz.
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* Long bond blues Debt and deficit worries are intensifying, and no major economy is immune. Japan's 30-year yield touched record highs last week and now Europe is in the spotlight - Britain's 30-year yield is the highest since 1998, and France's the highest since 2009. Fiscal dominance? The UK sold a record amount of 10-year bonds on Tuesday but paid the highest price since 2008. Britain has heavy borrowing needs, slow growth and the highest inflation in the G7. And France won't get its fiscal house in order any time soon as the government faces collapse, which would force snap elections. * Gold glitters Gold rose on Tuesday for the sixth day in a row, its longest winning streak in a year. It has risen 6% in that period, and today posted a new high of $3,540 an ounce. Is this portfolio reallocation, a dovish Fed trade, or flight to safety? It's probably all of the above, with the safe-haven element figuring more prominently in investors' recent thinking. Then there's inflation. Tariff-driven price hikes combined with loose fiscal policy in many major economies are fueling inflation fears and driving up long bond yields. A perfect storm for gold. |
* Tariff-ic Just when much of the uncertainty around Washington's tariffs had died down, a U.S. federal appeals court ruled on Friday that most of them are illegal. They remain in place and President Trump said the administration will file an appeal with the Supreme Court on Wednesday and request a quick decision. But it's a headache investors could do without as the worst month of the year for stocks gets underway. Figures on Tuesday showed US manufacturing contracted for a sixth straight month in August, and from a global viewpoint, pictures of China's Xi Jinping, Russia's Vladimir Putin and India's Narendra Modi smiling together in Beijing on Monday won't have been lost on investors either. |
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Anxious Wall Street braces for jumbo 'September effect' |
Data going back decades shows that, on average, September is the worst month for U.S. stocks – and by a considerable margin. So should investors brace for another bumpy ride this year? Almost certainly, and not just because of the "September effect." If the market saying "Sell in May and go away" had any validity, September would be a bumper month, with investors returning from their summer holidays eager to buy back stocks that, presumably, had become cheaper since Memorial Day. But history suggests the opposite. |
Since 1950, the S&P 500's average return in the month of September is -0.68%, according to Carson Group's Ryan Detrick. If you round to one decimal place, September is the only month with an average negative return in the last 75 years. And there have been more "down" than "up" Septembers over this period. The S&P 500 has only posted positive returns in September 44% of the time since 1950, the lowest positivity rate for any calendar month and the only one below 50%. And the performance appears to be getting worse. In the last decade, the S&P 500's average September return has been near -2%. |
What could move markets tomorrow? |
- Australia GDP (Q2))
- Reserve Bank of Australia Governor Michele Bullock speaks
- South Korea GDP (Q2, revised)
- UK PMI (August, final)
- Bank of England's Sarah Breeden and Catherine Mann speak at separate events
- European Central Bank President Christine Lagarde speaks
- Euro zone PMI (August, final)
- Euro zone PPI inflation (July)
- U.S. durable goods (July)
- U.S. JOLTS job openings (July)
- U.S. Chicago PMI (August)
- Federal Reserve officials scheduled to speak include St. Louis Fed President Alberto Musalem and Minneapolis Fed President Neel Kashkari
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. |
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