the view: Looking back at September 2024

The view

Hello and welcome to the market view covering September. I’m Nathan Sweeney, the CIO for Multi-Asset at Marlborough.

This month's key themes were Fed rate cuts and China Stimulus.

Did you know that September is historically the most volatile month for stocks? Is this down to a collective shift in mood rather than economic forces? As the season changes—back to school, back to work, the onset of autumn—optimism tends to fade. The cooler weather and shorter days seem to mirror a cooling market sentiment. Over the past decade, the S&P 500 has dropped on average by of 2.3% in September, making it the only month with consistent negative returns in each of the last ten calendar years.

But not this year! As markets have enjoyed a good September, why is that?

Let’s start with the Fed interest rate cut.

During the month senior figures at the US Federal Reserve faced a tricky decision: should they cut interest rates by 0.25% or go for 0.5%.

It’s like driving down the motorway – if you slow down too sharply, everyone wonders if there’s trouble ahead. If you slow down too slowly, you might cause a crash. But slow down just right, and the drive stays smooth.

That’s essentially what Fed Chairman Jerome Powell did with the 0.5% interest rate cut. Historically, such a large cut signals recession fears, but Powell made a credible case for why this was different and we tend to agree. The US economy isn’t collapsing: unemployment is still low at 4.2% and GDP growth is a steady 2.2%, so the economy is strong. Powell didn’t slam on the brakes. Instead, he recalibrated – adjusting just enough to support the economy while keeping things calm.

And sure enough, following the announcement stocks moved higher and hit all-time highs across multiple markets.

Key Takeaway:

By cutting now and signalling further reductions are to come, we believe this will support economic growth and the jobs market, leading to a continuation of the current bull market.

And now onto the second topic, China's stimulus

China’s latest stimulus package announced towards the end of the month is bigger than most expected, and the markets have responded positively. The People’s Bank of China (PBoC) has taken a more aggressive stance than usual, interest rates, alongside new tools to boost liquidity in the stock market.

A key part of this package is a new RMB 500 billion swap facility, which could expand to RMB 1 trillion. The swap facility is like a loan system that gives investors more cash to buy stocks.

Here’s how it works: big financial firms like funds and insurance companies can take assets they already own—such as bonds or stocks—and temporarily exchange them for cash from the central bank. They can then use this cash to buy more stocks or invest elsewhere.

Think of it like pawning an item for cash. You give something valuable (like a bond), get money in return, and can use that money to make other investments. This helps boost market activity by giving investors more spending power.

Takeaway:

While we see the stimulus as a step in the right direction, helping to underpin the equity market, we still believe more work is needed to increase consumer demand and a sluggish property sector. Ultimately, for sustained confidence to return, additional fiscal support may be needed.

All considered, we think the combined action of the Federal Reserve's interest rate cuts and stimulus by the Bank of China will help to support a continued move higher in equity and bond market. Interestingly, investors are rotating into areas that will benefit from interest rate cuts, like government bonds, smaller companies, and interest rate-sensitive equities like utilities.

Thank you for listening and join me next time for the view.

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.

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