Markets prefer clarity – or at least as close a facsimile as they can get. Since the start of the pandemic, we’ve seen how markets can push through uncertainty, up to a certain point.
September, however, brought a stack of compounding uncertainties, combining to end the S&P 500’s seven-month bull streak. To understand what caused this downward tilt, point to these four Cs:
- China: The potential default of Ever grande, the Chinese real estate giant
- Congress: Brinkmanship over the federal debt ceiling and pending legislation
- Commodities: The rapid oil price hike to values not seen since 2018
- COVID-19: The continuing surge, even as global lockdowns are at a low point
Still, it’s hard to keep a strong market down, especially as time moves forward and experience overwrites expectations. There are good reasons to see the strength underneath this September dip, and to see it in context. For the year, the S&P 500 is up 14% and about 5% below recent record highs.
For the quarter, the S&P 500 is up less than 1%.
In other areas:
- Supply chain difficulties have lasted longer and have been more severe than anticipated and will likely continue into the early part of 2023.
- Investors continued to demonstrate a willingness to buy after a pullback, suggesting an underlying confidence in the economy.
- Inflation forecasts for 2021 have moved higher, though Federal Reserve officials still view much of the increase as transitory.
- The Federal Reserve’s Federal Open Market Committee signaled its intent to wind down its $120 billion per month of long-term securities purchases, a pandemic response. More clarity is expected at the group’s November policy meeting.
The bottom line: Caution is recommended amid a stack of smaller uncertainties, but this month’s blip didn’t produce a good reason to lose confidence in the longer term.
All investments are subject to risk, including loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The S&P 500 is an unmanaged index of 500 widely held stocks. An investment cannot be made in this index. The performance mentioned does not include fees and charges, which would reduce an investor's returns. Material prepared by Raymond James for use by advisors.