Fund managers are cautioning about a potentially turbulent September for equity markets, citing concerns over high valuations amid a backdrop of slowing US economic growth and substantial government borrowing worldwide. While September is historically a weak month for global stocks, Australia’s S&P/ASX 200 Index has already declined nearly 3 per cent since late August. US indexes have fared somewhat better, recently reaching record highs, but investor nervousness persists.
Several factors are contributing to market unease. These include ongoing trade tensions, generous tax cuts, and spending plans in the US, as well as President Trump’s repeated criticism of the US Federal Reserve. Martin Conlon, head of Australian equities at Schroders, noted that valuations appear stretched and highlighted potential disruptions in bond markets. He advised investors to exercise caution.
Historically, September has been the worst month for the ASX, with the All Ordinaries Index showing an average loss of 0.4 per cent over the past 45 years. A key element of this weakness is the round of dividends paid to shareholders. The US market also sees a “September swoon” with the Dow Jones falling on average over the last 75 years.
This year, the market is especially sensitive to the Federal Reserve’s actions. George Boubouras, head of research at K2 Asset Management, suggested that markets could react negatively if the Fed’s rate cut outlook is less dovish than expected. The US share market is particularly vulnerable, given the significant gains made by the technology sector this year, which could face a sharp correction if the Fed fails to reassure investors with further rate cuts. Another concern is the increase in public debt around the world. The combination of these factors suggests a cautious approach for investors in the coming month.
