September lives up to its miserable market reputation

By Glenn Dyer | More Articles by Glenn Dyer

August set the tone with a dip into the red, but September has witnessed some of the biggest daily falls in the last 10 months. With a week left to go, the losses have been significant.

Last week, in fact, marked the worst trading week for the market in six weeks, leaving them down since June 30, marking the end of the second quarter (and the Australian financial year).

The US dollar reached six-month highs in the wake of the Fed's decision last week (and the subsequent decision by the Bank of England to adopt a similar watch-and-wait stance a day later). However, it retreated from those levels in Friday's trading.

US bond yields rose after the Fed's meeting and the central bank's realisation that the economy is stronger than previously thought, along with rising energy and petrol prices threatening an upturn in inflation.

Furthermore, investors are increasingly concerned about the rising possibility of a government shutdown on October 1. It may start as a partial shutdown but could escalate to a full halt due to hardline right-wing Republicans in the US House of Representatives refusing to fund the government, especially defense.

Markets and investors became alarmed when Fitch downgraded the US's AAA rating to AA+ (stable) on August 1. With Moody's being the only notable agency still rating the US at AAA, there are concerns about how long it will hold if this latest Republican maneuver leads to a government shutdown and undermines confidence.

US bond yields indicate that the 10-year note ended at 4.40%, up 11 points over the week (reaching its highest level since 2007). The 2-year T-bond yield reached highs not seen since 2006, ending the week at 5.097%, up 6 points.

Friday's decline was smaller than Thursday's, with the S&P 500 slipping 9.94 points, or 0.2%, to 4,320.06, erasing the small gain it held for most of the session.

The Dow fell 106.58 points, or 0.3%, to 33,963.84, and the Nasdaq dipped 12.18 points, or 0.1%, to 13,211.81.

For the week, the S&P 500 dropped 130.26 points, or 2.9%, the Dow shed 654.40 points, or 1.9%, and the Nasdaq slid 496.53 points, or 3.6%.

Friday marked the culmination of an ugly slide, driven by investors' growing understanding that interest rates are unlikely to come down significantly in the near future. This has led Wall Street to fall below its August lows, establishing a downtrend since July and possibly signaling a challenging final quarter of the year.

After Friday, all three major Wall Street market measures are headed for losses this month, with the Nasdaq down by more than 5% (still up 26.2% for the year, but all gains made before June 30). The S&P 500 is on track for a 3.9% dip (still up 12.5% for the year, again all before June 30), and the Dow is down 2% for the month, adding to its 1.9% drop last week, and holding on to a year-to-date gain of just 2.5%.

In contrast, Eurozone shares lost 2% last week, Japanese shares fell by 3.4%, but the Chinese share market rose by 0.8%, possibly due to positive developments in the property sector with another major developer attempting a restructuring.

August saw declines as well, with the Dow down by 2.4%, the S&P 500 off by a smaller 1.7%, and the Nasdaq losing 2.2%. The ASX 200 was down by 1.5%.

The Australian market experienced a significant downturn last week, but after Thursday's sell-off spilled over into Friday, momentum shifted 180 degrees, resulting in a substantial turnaround. Despite being more than 100 points down at one point, it managed to close up by 3.6 points.

However, it still recorded a 2.9% loss, making it the worst week in two months. This reduced the year-to-date gain in 2023 to just 1.76%, significantly lagging behind inflation.

Despite the substantial Friday swing, the ASX appears poised to start the new week slightly in the red, following an 18-point slip in ASX 200 futures trading overnight Friday, coupled with growing concerns about the turmoil in Washington and the looming shutdown on Sunday.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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