What September Could Bring For Investors
September is sometimes called the worst month to invest. Today, we’re going to explain why, and check out what 2022’s variant may have in store. After that, we’ll delve into the top fundamental events to watch out for this week. Let’s do this!
Wake me up when September ends…
Greenday fans out there may well recognise that lyric. Billy Joe Armstrong probably wasn’t singing about investing, but he was on the money. September has long been seen as a bogey month for investing. Why, you ask?
History teaches us that the ninth month of the year is when the stock market typically performs worst as the three leading indexes regularly take a dip It’s even become known as the “September Effect.”
Since 1950, during the month of September, the Dow Jones Industrial Average has averaged a decline of 0.8%, while the S&P 500 has averaged a decline of 0.5%.
Going a bit further back, from 1928 to 2021, the S&P 500 index has averaged a 1% decline during the month of September. Not pleasant reading if you’re betting big on the mightiest US companies.
What could make September miserable?
Aside from that bleak historical perspective, what else might make September 2022 a month to forget for investors?
#1 A rebound at the pumps
Oil prices hit a record high earlier this summer, but have fallen sharply in recent weeks.
WTI Crude Oil, 3 months
Source: DailyFX
This drop is largely down to supply and demand. When pump prices flew up, drivers worldwide were forced to adjust, trying to limit how much they drove (and spent). They carpooled, combined errands, and cut out unnecessary journeys.
At the same time, countries like the US have beefed up their oil production. So demand has dropped and supply has increased.
But this is surely unsustainable. Low prices will make drivers more confident in taking more trips, and increased domestic consumption can’t last forever.
Should this situation change in September, expect trouble in the markets.
#2 Rising food prices
This is also nothing new. There are numerous factors at play here. For the UK, Brexit may be a factor. Fuel prices certainly played their part as containers of food became more expensive to transport by road, sea or air. The continued war in Ukraine has made a dent in global markets for food, fuel and fertiliser too.
W 1:COM (Wheat), 6 months
Source: Bloomberg
As you can see, prices have largely fallen back to their pre-war levels. This should be good news, but again, as with oil, this situation is all too precarious.
Consistent supplies of grains and fertilisers are vital, but their freedom of movement is as unpredictable as the outbreak of the war that restricted it in the first place. The recent price drops will have done little to calm investors down.
How sustainable are current prices? Not very.
#3 That creeping recession…
Like it or not, the next recession is well overdue. While it may not quite arrive precisely in September, investors are increasingly wary that its on the way.
Rising inflation is adding to that worry. Inflation can bring layoffs, fewer jobs and higher interest rates. Last week’s US consumer price index (CPI) report revealed year-over-year inflation reaching 9.1%, the highest rate since 1981.
According to a recent Bloomberg survey, the probability of a recession over the next 12 months is 47.5%, up from 30% in June. Yikes!
There is an air of inevitability around the markets at the moment. Investors never truly know for sure, but many do strongly expect energy concerns to linger, food prices to bounce back, and a painful recession to be around the corner. There’s no doubting that September and the months beyond are going to be a tough watch.
How did we do?
Did we miss a key warning sign? Is a recession approaching? How have you adjusted your trading strategy to cope with it? Let us know by tweeting us at @_Contentworks.
Top trading events this week
Here are the hottest events for your trading calendar this week.
Monday
No major events are planned.
Tuesday
● AUD — Westpac Consumer Confidence Index (AUG)
Wednesday
● CNY — Inflation Rate YoY (JUL)
● EUR — Inflation Rate YoY Final (JUL)
● USD — Core Inflation Rate YoY (JUL); Inflation Rate YoY (JUL)
Thursday
● CNY — New Yuan Loans (JUL)
● USD — PPI MoM (JUL)
Friday
● GBP — GDP 3-Month Avg (JUN); GDP Growth Rate YoY Prel (Q2);
● GDP YoY (JUN)
● USD — Michigan Consumer Sentiment Prel (AUG)
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The Contentworks team
