Market Analysis and Investment Insights

The month of September is historically the only month that has a negative average return for the S&P 500 (-1.2% since 1930). The month of October averages a drop when counting only US presidential election years (-0.6%).

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In 2022 through 1H2023, unusually strong labor markets drove Fed policy to tighten more than investors believed the economy could endure. This occurred while many industries suffered declines in profits, making for a particularly bad financial market setting.

Today, these conditions have reversed. Covid delayed a rebound in services-related employment gains, but these labor-intensive industries are seeing hiring slow. Meanwhile, cautious producers who suffered profit declines are seeing EPS gains recover. This is while the Fed is poised to begin easing monetary policy by September.

Rising global food insecurity has come under the spotlight following a series of geopolitical shocks, including the COVID-19 pandemic and Russia’s invasion of Ukraine. Food security concerns have also been compounded by the effects of a shifting climate and increasing evidence of damage caused by accelerating biodiversity loss and water scarcity. Amid concerns about immediate and long-term food security, agriculture policies are caught in the crossfire between short-term food security and sustainability.

• October 2023 price is gone, the opportunity remains.
• Markets still price in too high a probability of a March rate cut, in our view. Still, 150 bps of cuts expected in 12 months is not extreme.
• What has happened since OL24: Junk rally amid dovish Fed turn.
• How’s the broadening trade going?
• Health Care: the anti-obesity craze won’t stymie innovation.
• Yield curve is now very flat, and positively sloped between intermediate-to-long dated maturities.
• Intermediate IG still offer attractive “real” yields vs expected inflation with yields of about 5.15% for duration of about 4 years.
• USD: The recent squeeze up in DXY may partly be due to a rise in risk aversion related to the Middle East.
• Presidential Year Stock Market Returns.
• Market-cap vs Equal-weighted S&P 500 Over Time.
• China’s equity performance is uncorrelated with its GDP growth, while the property market has acted as a key source of wealth generation since 1997.
• Japan – Profitability, Investor Inflows, Currency Kicker.

Fed Chair Jerome Powell’s “The Time Has Come” speech signaled the Fed’s readiness to act at the next FOMC meeting on September 18^th. Given the signals from the Fed, we expect that the central banks of the Gulf Cooperation Council (GCC) economies will follow suit by reducing their policy rates, potentially starting with a 25-basis point (bps) cut in September.

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