Weekly comment: A disappointing week as summer ends

3 minute read

Weekly podcast – Market overview

This week’s host, Investment Manager, Fraser Wilkinson discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter. Among the topics discussed – falling interest rates in the UK, what the new UK government will mean for investments and more.

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Market overview – Richard Carter, Head of Fixed Interest Research

Last week, the MSCI All Country World Index lost -3.7%, yet the market still sits on a 12% gain year-to-date.

In the US, tech-heavy shares led the declines, driven in part by a significant drop in Nvidia’s stock, which has fallen by over US$400bn since its earnings report. The tech sector lost -5.8% for the week, though it remains up 11.8% year-to-date. Large-cap stocks fell by -4.2% (14.5% YTD), as concerns over an economic slowdown weighed on investor sentiment. Growth shares declined by -5.4% (14.6% YTD), value shares by -3.1% (11.6% YTD), and mid-cap stocks by -5.7% (4.1% YTD).

Despite the disappointing week, top Federal Reserve officials have left the door open to a half-point interest rate cut after US job openings fell to the lowest level in more than three years in July. Speaking on Friday, governor Christopher Waller and president John Williams endorsed a series of rate cuts this year given the fall in inflation and softening of US labour market.

European large caps ended the week -3.9% lower (7.0% YTD). Germany’s large caps dropped -3.2% (9.3% YTD), France’s -3.7% (0.2% YTD) and Italy’s -3.1% (14.2% YTD). It was not all bad news in Europe however, as European Central Bank (ECB) governing council member Gediminas Simkus stated that he saw a “clear case” for an interest rate cut in September. The euro appreciated versus the US dollar, ending the week at 1.11, up from 1.10.

In the UK, large caps slid -2.3% (9.0% YTD) and midcaps decreased -2.8% (6.6% YTD). The British pound was little changed versus the US dollar, ending the week at 1.31.

September effect no concern for long-term investors

While last week was disappointing across markets, it is somewhat expected at this time of year. Historically, September has been a challenging month for stocks, with the MSCI AC World averaging a 0.7% loss since 1950. It is generally believed that investors return from summer vacation in September ready to lock in gains and any tax losses for the end of the year. There is also a belief that individual investors liquidate stocks in September to offset schooling costs. Ultimately, as this has become an annual tradition, market psychology takes hold, and sentiment in September turns negative to align with these expectations.

This is why a long-term outlook on global stock markets is often a more effective strategy than short-term investment bursts. A monthly outlook on investments can see diminished returns based on the month you are investing in, whereas the likelihood of lucrative returns generally increases on an annual basis. This is proven by the year-to-date returns across the majority of major stocks globally, with the MSCI All Country World Index standing at a healthy 12% gain.