Monthly economic and market review: September 2023

October gets something of a bad rap in investment circles with some of the biggest market crashes having taken place in the 10th month of the year. The 1929 stock market crash and the emotively named “Black Monday” crash in 1987 all played out during October. Historically though, the worst month for the markets, on average, has been September. Different theories have been put forward for this seasonal market behaviour with many observers considering the return to work and school in the northern hemisphere, post the summer holidays, as driving investors to more of a selling bias in September (to raise funds for school fees and position their portfolios for the looming year-end). Institutional investors have also been blamed for this “September effect” as they reposition funds post the holidays. With American market trends more often than not steering global market direction, this seasonal northern hemisphere pattern has been mimicked in the local market. On average, the JSE’s worst trading month of the year has also been September. Mark Twain famously pointed out that there are three kinds of lies: lies, damn lies and statistics. Past history is no guarantee of future performance, as we’re constantly reminded, and September doesn’t necessarily have to be a negative or terrible month for markets simply because of past trends. Unfortunately, the performance of the markets this past September will be written into the record books in red ink.

Chiefly to blame for the weaker equity markets has been the “higher for longer” narrative where the hawkish talk from key central bank policy makers pushed the market to believe that restrictive monetary policy (high interest rates) was not going to be reversed as quickly as the market had been expecting. There were no further rate hikes from the US Federal Reserve Bank, the Bank of England or the South African Reserve Bank at their September meetings but the European Central Bank did hike their main refinancing rate by 25 basis points at their meeting. The rhetoric from the central bank governors was very similar though, with warnings that inflation was not yet beaten, rates could go higher if required and that policy changes would remain data dependent. The Federal Reserve’s meeting statement was accompanied by the quarterly update of the “Summary of Economic Projections” which reflected Fed members’ expectations of another rate hike this year. US bond yields weakened in response with the two-year notes trading back above the 5% level again for the first time since March (and having traded down to a low point of 3.74% in May). Yields on the US 10-year bond rose almost 50 basis points in the month to close at 4.58%, a level last seen in October 2007. Some of that yield pressure came from the almost $10 a barrel increase in oil prices in the month which reignited inflation fears and drove the market back into a “risk off” mode. Domestic bond yields also pushed higher, with yields on government’s R2032 bond rising to a high of 11.90% in September before closing out the month at 11.70% (up 68 basis points in the month).

The US dollar strengthened from $1.09/€ in September back to its best level of the year at $1.05/€ before closing the month at $1.06/€. Commodity prices, which are priced in US dollars, consequently retreated, with gold, the platinum group metals and most of the base metals experiencing lower prices (copper, nickel, lead, tin were all down with aluminium and zinc prices higher). Bulk commodity prices bucked the general trend, with coal prices higher as energy prices rose and iron ore prices higher as China provided additional accommodative policy measures in the month. With the US market trading at something of an elevated valuation and in the absence of corporate earnings news, the path of least resistance for the S&P 500 index was down.

The S&P 500 lost 4.9% in September to record its worst monthly performance of the year (see monthly 2023 chart alongside). This decline followed the August retreat of 1.8% and left the market up 11.68% for the first three quarters of 2023. The local equity market gave up 3.4% in September after having declined by 5.1% in August and that pushed the FTSE/JSE All Share index below its 2023 starting level (see monthly 2023 chart alongside). In rand terms the JSE was left 0.91% lower for the year to date but following the rand’s depreciation in 2023, this was amplified to a -10.9% decline in US dollar terms.

The table below details the monthly moves in the US and South African equity and bond markets in 2023 along with monthly moves in selected commodity prices, currencies, inflation rates and central bank policy rates.

Index, currency, commodity, inflation and fixed income moves in 2023:

The table below reflects some of the JSE’s biggest winners and losers in the month of September and in the first nine months of this year. Some of the market’s fallen angels were given a reprieve in September and small monthly gains were recorded by platinum counters Angloplat, Impala and Sibanye Stillwater with gains in Thungela Resources, Exxaro Resources and Anglo American and retailers Mr Price and Pick n Pay. Despite these shares all closing higher in September, they remain firmly in the red in 2023 so far. The higher oil price and the weaker rand helped Sasol’s cause during the month and the share closed 6.9% higher in September. The beleaguered Spar Group released a 47-week trading update on the 28^th of September and it was extremely well received by the market, pushing the share 11% higher on the day and propelling it towards the top of the gainers list for the month. The release of Capitec’s interim results on the same day also elicited a positive market response and the 6.4% gain on the day left the share up 8.4% for the month and amongst the best of the monthly gainers.

Some of the biggest gainers for the year, however, lost ground in September and this was most noticeable with Gold Fields and Harmony as the gold price retreated in a strong dollar environment. Luxury goods companies around the world have been under pressure in recent months as Chinese economic growth disappointed and on the local bourse Richemont was a noticeable decliner in September (-13.7%). FirstRand posted their annual results on 14 September and while the market’s response was negative on the day (-3.2%), the share was weak throughout the month, closing 13.0% lower. The Naspers and Prosus corporate action to remove the cross-holding structure took place during September and while the market approved of the cleaner structure, the shares both lost ground in the month.

Selected winning and losing stocks on the JSE over September and 2023 year-to-date (price):

For only the third time this year, the S&P 500 index recorded a negative trading month with a decline of 4.9% in September. A total of 86% of the S&P 500 stocks closed lower in the month. The table below highlights the leading winners and losers from the 100 largest S&P 500 stocks in both September and the first nine months of 2023. Semiconductor stocks took something of a breather in September after a heady 2023 to date while retailers such as Home Depot and Lowe’s retreated as higher interest rates ate into disposable incomes. Aerospace was also under pressure with RTX Corp the biggest loser in the month (-16.4%) after providing chunky expenditure estimates for its Pratt & Whitney engine recall. The Apple “Wonderlust” event that launched the new iPhone 15 and Watch Series 9 wasn’t met with much market exuberance and the share lost around 9% in the month.

Only 15 of the top 100 S&P 500 stocks by size finished in the green in September. These included some energy names (Exxon Mobil, Chevron), a number of defensive healthcare/pharmacare stocks (CVS, UnitedHealth, Abbvie) and a couple of telcos (T-Mobile, AT&T). At Meta’s Connect developer conference at the end of the month there was much excitement as the new Quest 3 virtual reality headset was showcased along with nest generation Ray Ban smart glasses. That excitement did not, however, translate into much market exuberance but the share did close up 1.5% for the month to be a smidgen shy of 150% for the year so far.

Top winning & losing stocks from the 100 largest S&P 500 companies in September and 2023:

September was not a good month for markets around the world. Was it simply the “September effect” and can we look forward to a better final quarter of 2023? A catalyst for better markets would definitely be some easing up on the hawkish talk by central bankers and some market realisation that interest rate cuts are not far off in the grand scheme of things. The US third quarter earnings season is set to kick off in mid-October and expectations are for a return to earnings growth. Such an earnings recovery would be positively received by the markets, particularly if forward guidance is also upbeat. Investors should not, however, bank on the markets improving solely on the back of longer-term historical averages for the final three months of a year. Whichever way the final quarter of 2023 plays out, investors will know to stay the course and benefit from the rewards that time and compounding in the equity market provide. Those with a short-term view should take heed of the words penned by Mark Twain in his novel Pudd'nhead Wilson: "October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."