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The Macroeconomic Summary

Global equity markets endured a challenging quarter that included the “higher for longer” narrative where the hawkish tone from various reserve banks reinforced the notion that the restrictive monetary policy was not going to be reversed as quickly as the market had initially anticipated; simply put, interest rates are going to stay higher for longer, and this narrative has dominated the market rhetoric in quarter 3.

In September, there were no further rate hikes from the US federal reserve bank, the Bank of England, or the South African Reserve Bank but the European Central Bank did hike their main refinancing rate by 25 basis points at their meeting. The rhetoric from the various central bank governors was uniform with warnings that inflation had not yet been beaten, and that rates could go higher if required, and that policy changes would remain data driven.

In terms of the impact that this has had on markets, September saw the S&P 500 decline 4.9% to record the worst monthly performance of the year. This followed on from August’s drop of 1.8% to leave the S&P 500 up 11.68% by the end of the third quarter. Local markets were not insulated from the economic turmoil either, the FTSE JSE All Share gave up 3.4% in September after having lost 5.1% in August, and this served to push the proxy for the South African market below its 2023 starting level. This loss was compounded when factoring in the relevant exchange rate movements; accounting for the depreciation in the rand, the local bourse lost 10.9% in 2023 in US Dollar terms.

Quarter 3 was not a good quarter for markets around the world. By and large, this can be attributed to the hawkish tone of the various central bankers and whether this continues into the last quarter of the year will be a big determining factor in the market’s performance. In terms of catalysts, the central bankers easing up on their hawkish tones would go a long way to soothing investor concerns, but one must note that interest rate cuts are not actually that far off in the grand scheme of things.

With the US third quarter earnings set to start in mid- October, expectations are for a return to earnings growth. Needless to say, an earnings recovery would very much be received positively by markets, particularly if the forward guidance is positive. 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. 

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About the Author

Muhammed Wagley
Portfolio Manager, Sasfin Wealth

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