September market performance: The start of a storm?

US -4.9%
While the Fed paused its tightening cycle in September, the message remained that of higher-for-longer, which has been painful for the US equity markets to digest. As a result, the US equity benchmark index, the S&P 500, was down 4.9% in September and underperformed other global equity benchmarks. The OPEC-driven surge in oil prices also underpinned concerns of another spike in inflation as well as a pullback in consumer spending, as purchasing power gets impeded. Meanwhile, markets were looking ahead to risks coming from an impending US government shutdown, which has been averted for now, along with autoworker strikes, as well as the restart of student loan repayments. 

Europe -1.6%
The European index, MSCI Europe, outperformed the US benchmark index in September, but it was also in the red, as it closed down 1.6%. Inflation has started to ease, and the ECB hiked rates again in September but hinted at peak rates, while the Bank of England and Swiss National Bank kept interest rates unchanged in a surprise decision. While most central banks could stay tight with risks of an oil-driven inflation resurgence, Europe’s economic concerns continue to get louder with the slump in Germany and risks seen to Italy’s fiscal situation as well. Meanwhile, demand from Chinese consumers remains tepid. 

Asia -2.9%, Emerging Markets -2.8%
The performance of Asia and emerging markets improved in September, after hefty declines in August. Still, MSCI Asia was down 2.9% and MSCI Emerging Markets slumped by 2.8% in the month. The weakening global growth outlook continued to put pressure on Asia’s export-driven economies, such as South Korea and Taiwan, even as the domestic-demand-driven economies such as India closed the month in green. China’s high frequency data started to show some signs of an improvement, but the property sector remained an overhang. Meanwhile, the rise in oil prices and a sustained surge in the US dollar added to the headwinds for EMs.

The energy sector recorded a fourth consecutive month of gains in September and was the only sector in green, with gains of 2.5% last month. Crude oil prices have extended their advance amid supply tightness concerns, and $100 oil in the short-term remains a key focus. This has brought the focus back to energy equities which continue to generate high shareholder returns. Financials was the second-best performing sector, posting a decline of 2.3%, while Communication Services and Healthcare were down over 3%. 

Despite the recent sell-off in bonds on the back of higher-for-longer messages from most global central banks, bonds outperformed equities yet again in September. Central banks are still generally maintaining a hawkish bias, and we saw bear steepening of the yield curve in most developed markets. Corporate bonds underperformed global Treasuries once again in September.