September has been a horrible month for the S&P 500 as the index recorded its lowest average monthly return since 1980. According to an analysis made by CNBC financial experts, the S&P 500 has traded lower 70% of the time during the last two weeks. In addition, analysts noted that the index average return was calculated to be -1.3%.
Although September has been a dreadful month for the S&P 500, there are still some bullish sentiments because there are lots of book clearing before the fourth quarter. In the words of Ryan Detrick, senior market strategist at LPL Financial, “the summer doldrums are coming to an end because there are lots of book clearing ahead of the fourth quarter.” This seems to be good news for the S&P 500 since the fourth quarter has the potential to erase some of the losses recorded in Q3.
Not All Gloom and Doom
In the past two weeks, the Utility and the telecommunication sectors of the S&P 500 have been doing well with both sectors trading up 61 percent of the time. Both sectors have rewarded investors with average returns of 0.1% for telecommunication and 0.2% for Utilities.
However, the materials and the consumer discretionary are the worst performers with a positive trend recorded only 32% of the time in the past two weeks. Both sectors have booked losses with an average return of -2.19% for consumer discretionary and -2.54% for materials.
Fresh Bout of Volatility as Fed Acts on Interest Rates
The Federal Reserve will probably begin unwinding its $4.5 trillion balance sheet after the two-day meeting scheduled for this week. This enormous portfolio was accumulated by the central bank during the financial crisis. This, however, will be the first time a central bank will try to unveil a portfolio of this magnitude. However, past balance sheet unveiling leads to a recession and can continue to have a negative impact in the stock market.
Peter Boockvar, the chief market analyst at The Lindsey group wrote: “this tightening cycle is about to ramp up with liquidity being drawn each and every month and by another increment after 3-month intervals until at some point $50 billion per month of liquidity will suddenly disappear.”
Tensions on the Asian front are also adding to the level of volatility in the global markets as the drums of war continue to sound. The United Nations has imposed a ban on North Koreas textile export and restricted its crude oil imports as part of efforts to punish the rouge nation for its military activities in the pacific. Last week, North Korelaunched a missile that flew over Japan before it landed into the sea; thereby, displaying its capability to attack the underbelly of the U.S. in the pacific.
From the words of Jack Ablin, the chief investment officer at BMO private bank, He said, “the increased frequency, power and pretentiousness exhibited by these tests seem to confirm what governments have long feared. That North Korea is closer than ever to its goal of building a military arsenal that can be used on US troops in Asia and the US homeland.”