Uriel Loredo

We know that September has historically been a challenging month for the markets. While this month tends to be tricky, understanding the reasons behind this trend will allow you to be better prepared. Here are some key insights: 

• Market Seasonality: September has proven to be the weakest month for the stock market. Since 1928, the S&P 500 has averaged a performance of -1.2%, closing with gains only 44.3% of the time. 
• Portfolio Rebalancing: With the year approaching its end, many institutional investors adjust their portfolios, which can increase selling pressure. 
• Post-Vacation Volatility: The return of traders after summer often brings increased volatility. 
• Economic Data and Geopolitics:  This month, significant economic data and monetary policy decisions are expected to influence market sensitivity. Moreover, geopolitical tensions remain present, adding uncertainty.  

In a nutshell, while September can be volatile, staying informed will help us navigate with greater confidence. 

We encourage you to continue monitoring the market and preparing for any scenario. 

Historical monthly average performance 

DJIA – Dow Jones (1897), S&P 500 (1928), Nasdaq (1971) y Russell 2000 (1987) 

Source: Marketwatch – Dow Jones Market Data 

Discover the main conclusions from recent market movements and how they might impact on your investments.

August presented us with a rollercoaster in the markets, starting with an initial correction followed by a fast recovery. However, behind this volatility lie important signals we need to consider:

Soft landing on the horizon:

• The economy continues to show strength, but with signs of slowing down, particularly in the labor market. Nonetheless, the economy is not at risk of significant deterioration. A soft landing remains the most likely scenario.

Fed preparing to cut rates:

• With economic growth moderating, inflation decreasing, and the labor market cooling, it’s likely that the Fed will reduce interest rates by 25 base points at its next meeting on September 16.

Solid Corporate Earnings but with Challenges:

• S&P 500 companies reported strong earnings for the second quarter (+8% year-over-year), with interesting growth beyond the “Magnificent 7” (+4.6% year-over-year excluding this block of companies) for the first time in five quarters, but future prospects have moderated.

Volatility Ahead:

• Negative seasonality, economic and geopolitical uncertainty, as well as upcoming elections, could increase volatility in the markets.

How can you navigate this volatile environment?

Maintaining a long-term investment strategy is crucial to overcome market storms.

Stay informed: This is the survey outlook for the upcoming US elections

Source: RealClearPolitics

Let’s understand market corrections and why they happen.

A market correction is defined as a decline of 5-10% in a bull market. Although these events may seem like a sudden storm, they are a natural part of market cycles.

Corrections can be triggered by various factors, from geopolitical tensions to disappointing corporate reports. These adjustments allow asset prices to align with their true values and prevent the formation of bubbles, while also offering new opportunities for investors.

How can you effectively navigate a market correction?

• Stick to your investment plan: Ensure your actions align with your financial goals, risk tolerance, and investment horizon.

• Diversify your portfolio: A diversified portfolio can help mitigate the risks associated with corrections. Spreading your investments across different asset types reduces exposure to market fluctuations.

• Stay informed and avoid panic: While it’s important to stay updated on market news, don’t let sensational headlines affect you. Keep calm and focus on your long-term goals.

In a nutshell…

Panic selling that may arise from a correction, along with the potential loss from not investing on the market’s best days, has significantly impacted investor performance over the past 50 years.

Panic selling can weigh on the long-term performance of a portfolio.

Source: Raymond James – Juliusbaer

With nearly 90% of the Q2 reports already submitted, we share the key takeaways of the season:

EPS Growth:

• Earnings Per Share (EPS) exceeded initial expectations with a year-over-year increase of +8.3%.
• 79% of companies reported EPS above expectations, surpassing the long-term average of 75%.
• The EPS growth for the S&P 500 was positive, even excluding the Mag-7, for the first time in five quarters, with a +4.6% year-over-year growth.

Uneven Performance:

Despite an overall solid season, some indicators fell short of expectations.

• The proportion of companies that beat sales estimates in the U.S. dropped to 48%, well below the long-term average of over 60%. In its year-over-year variation, sales grew +5%.
• This could put pressure on profit margins in the second half of the year.

Regional Performance:

• U.S. companies showed better performance in terms of EPS, with an 8% year-over-year growth, compared to +1% in Europe.
• However, the proportion of companies exceeding sales estimates in Europe (51%) was higher than in the U.S. (48%).
• This performance aligns with fluctuations in exchange rates.

Sector Results:

• The Materials and Consumer Staples sectors showed weaker results.
• In contrast, Consumer Discretionary, Healthcare, Financials, and Utilities experienced double-digit EPS growth.
• Amazon was the biggest driver of growth in the Consumer Discretionary sector; without Amazon, growth in this sector would have dropped by 6% year-over-year.

Future Perspectives:

• Despite challenges such as high interest rates and slowing employment, the overall resilience of the economy may continue to drive corporate earnings.
• An annual growth of 10.3% is expected for this year, slightly below the initially estimated 10.8%.
• For the next year, earnings growth is projected to be close to 15%, which seems somewhat optimistic for a scenario of economic slowdown.

S&P 500 Earnings Growth and S&P 500 Excluding the Magnificent 7

Source: JP Morgan

The Consumer Price Index (CPI) increased by 0.2% in July, meeting expectations, following a slight decrease of 0.1% in June. This reduced the annual CPI rate to 2.9%, the lowest since March 2021. Excluding food and energy, the core CPI also increased by 0.2% monthly, with an annual rate of 3.2%, remaining within expectations and reaching its lowest level since April 2021.

Here’s the performance of the key components:

Performance of key components:

• Energy: The energy index remained unchanged in July, following a 2.0% decrease in June. Gas gauge index also didn’t change during the month. On an annual basis, the energy index increased by 1.1%.

• Food: This component increased by 0.2% in July, the same as in June.
• The index for food at home increased by 0.1% in July (+1.1% annual). Three of the six major supermarket food indices increased, while the other three decreased.
• For food away from home, there was a 0.2% rise in July (+4.1% annual), following a 0.4% increase in the previous two months.
• On an annual basis, the entire food category advanced by 2.2%.

• Shelter: This category increased by 0.4% in July, representing almost 90% of the monthly increase in the overall index.
• Rents increased by 0.5% during the month.
• The index for shelter away from home increased by 0.2% in July, after a 2.0% decline in June.
• The entire shelter category recorded a 5.1% annual increase.

General Context:

This data, along with the recent drop in producer inflation to its lowest level in a year and a half, strengthens the possibility of a rate cut in September. Although pressures in the shelter sector persist, the consensus expects that at the September 17-18 meeting, there will be almost an equal chance of a reduction of either a quarter or half a percentage point.

Change (%) in the last twelve months of the CPI and Core CPI

Source: U.S. Bureau of Labor Statistics