Market update: September 2022

Confidence was visibly dented in September. Primarily because of recurring interest rate hikes. And Vladimir Putin's attempts to annex four Ukrainian regions. Stock, bond, currency and commodity markets all experienced a period of intense volatility. Which may indicate panic selling. 

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

The new U.K. government's budget plan caused additional concern. Mainly due to hefty proposed tax cuts for businesses and high earners. Resulting in a surprise action by the Bank of England (BoE) - to keep order in the bond market in the UK - by buying government bonds, pushing down rising prices. 

Emerging market equities underperformed in September as pressure mounts on their expected economic growth. That pressure comes from their own falling currencies and interest rate hikes in developed countries. 

Best fund performance 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, tension is rising further because of Russia's ambitions in Ukraine.

Developed country stocks had a difficult month due to interest rate hikes and rising tension. The S&P 500 ended the month 9.35% down. The biggest monthly (percentage) fall this year.

Specifically, the Fed meeting resulted in two developments. On the one hand, new US rate hike of 0.75% (to 3.00% - 3.25%). On the other, the indication of more rate hikes in 2023. The Federal Reserve again emphasized that containing inflation is the top priority for US central banks. Even if this negatively affects markets in the short term.

Equities in Europe followed their U.S. counterparts. The Stoxx 600 index posted a 6.6% loss during the month. In the United Kingdom, the new government's budget plan created additional tension. Which even led to action by the Bank of England to keep order in the UK bond market. 

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

Emerging market equities underperformed as growth forecasts faltered due to a strong U.S. dollar and fears of recession. In addition, China remained a major concern for global investors as their zero-covid policies continually caused growth problems. India, which in recent months seemed impervious to the downturn in the global market, nevertheless appeared to be hit during the month due to reduced market confidence.

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

What does October have in store for us? 

- Companies' quarterly results are critical to reducing market recession fears.

- The outcome of the ECB meeting that may cause new interest rate hikes. 

- Ukraine's struggle to regain 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 into account market downturns. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing in periods such as these is crucial to take advantage of falling markets.