Market update: September 2022

In September, confidence visibly took a hit, mainly due to the recurring interest rate hikes and Vladimir Putin's attempts to annex four Ukrainian regions. The stock, bond, currency and commodity markets all experienced a period of intense volatility, which may indicate panic selling. 

The Federal Reserve (FED) of the United States also raised interest rates by 0.75 percentage points to 3.00% - 3.25%. The FED expects to continue raising interest rates to a level of 4.50% to 4.75% next year. Interest rates on bonds rose to a record high for this decade in the US, UK and Germany. 

The new UK government's budget plan caused additional concern, mainly due to substantial proposed tax cuts for businesses and high earners, resulting in a surprising action by the Bank of England (BoE) to maintain order in the UK bond market by purchasing government bonds and thus suppressing rising prices. 

Stocks in emerging markets underperformed in September, as pressure is being exerted on their expected economic growth. That pressure comes from their own declining currencies and the interest rate hikes in developed countries. 

Best fund performances in September 2022: UBS (Lux) Money Market Sustainable Fund -0.02%

Central banks continue to raise interest rates to control inflation. At the same time, tensions are rising further due to Russia's ambitions in Ukraine.

Stocks in developed countries had a difficult month due to interest rate hikes and increasing tension. The S&P 500 ended the month down 9.35%. The largest monthly (percentage) drop of this year.

The FED meeting specifically resulted in two developments. Firstly, a new interest rate hike in the US of 0.75% (to 3.00% - 3.25%). Secondly, the indication of more rate increases in 2023. The Federal Reserve reiterated that curbing inflation is the highest priority for central banks in the United States, even if this has a negative impact on the markets in the short term.

Stocks in Europe followed their American counterparts. The Stoxx 600 index recorded a 6.6% loss over the course of the month. In the United Kingdom, the new government's budget plan caused extra tension. Which even led to action by the Bank of England to monitor order in the UK bond market. 

For Europe, there was a glimmer of hope in September. The falling price of crude oil (minus ~10%) and gas (minus ~20%) gave Europeans - who are suffering from rising inflation - some breathing space.

Stocks in emerging markets performed less well because growth forecasts faltered due to a strong US dollar and fear of a recession. In addition, China remained a major concern for investors worldwide, as their zero-covid policy continuously caused growth problems. India, which in recent months seemed immune to the declining global market, turned out to be affected during the month by the reduced confidence in the market.

The US and European 10-year yields rose sharply, to the highest level of this decade, with 67 basis points in the US and 57 basis points in Germany. This is thanks to the persistence of global central banks in combating inflation by implementing interest rate hikes. High-yield bonds and corporate bonds also recorded negative returns, -2.09% and -3.58%, with an increasing risk premium during the month due to the growing risk of a recession and rising prices. Following the ECB (European Central Bank) meeting in October, the money market yield is expected to rise to a level of 1.5% in the following month. 

What does October have in store for us? 

- The quarterly results of companies are crucial to reduce the fear of a recession in the market.

- The outcome of the ECB meeting, which may lead to new interest rate hikes. 

- Ukraine's struggle to regain the territories conquered by Russia will dominate the news flow.

What does all this mean for my plans?

Don't let the market disrupt your long-term goals. Vive's investment strategies take the declining market into account. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing in periods like these is crucial to take advantage of falling markets.