Monthly summary – September 2024

As in the previous month, September began with a spike in volatility. Mixed economic data, interest rate uncertainties and geopolitical tensions, all added to a weak start. With the benefit of hindsight, after nine out of the past ten months ended in the green, some profit-taking was perhaps to be expected, particularly bearing in mind that September historically is the worst month of the year for stocks. However, equity markets swiftly recovered, buoyed by the Federal Reserve’s decision to cut its benchmark rate by 50 basis points. The world index ended the month up 1.8 percent, measured in US dollars.

Market satisfaction with central bank action

At its September meeting, the Federal Reserve lowered its benchmark rate by half a percentage point to a range of 4.75 and 5 percent. While a cut was widely anticipated, some investors had expected a smaller reduction. Notably, only one of the Fed’s 12 governors voted for a quarter-point reduction. The Fed’s move reflected a growing emphasis on the cooling labor market as inflation moderated, with the annual inflation rate now at 2.5 percent. Labor market data released during the month showed that unemployment rates remained low by historical standards but were up nearly a full percentage point in September compared to the beginning of 2023. In China, the central bank also moved to ease monetary conditions; by reducing a key short-term interest rate and injecting liquidity into the banking system. These actions fueled speculation that the Chinese authorities are preparing to introduce more aggressive measures to revive the country’s sluggish economy.

Heightened tension in the run-up to the election

In a heated presidential debate, vice-president Kamala Harris and former president Donald Trump traded personal jabs in a contention that lacked substantive policy discussion. Kamala Harris was deemed to have won the debate by the betting markets and post-debate polls. As expected, the debate primarily focused on the economy, immigration, and foreign policy. When it came to healthcare, there were limited discussions centered around reproductive rights, the Affordable Care Act, and the Medicare Drug Negotiation program. If the polling data holds true, Republicans are poised to reclaim the majority in the Senate from the Democrats. The elections for the White House and the House of Representatives remain more competitive.

Geopolitical trends, uncertainties never end

In the Middle East, Israel continued its airstrikes in Gaza and Lebanon. The attacks in Lebanon paved the way for an Israeli ground invasion, the first of its kind since 2006. This was done despite a warning to Israel from the US National Security spokesman, John Kirby, against launching an all-out war against Hezbollah. In Ukraine, a significant drone attack was launched against Russia. The US Secretary of State, Anthony Blinken, suggested that restrictions on Ukraine using Western-supplied long-range weapons against Russia might soon be lifted. In response, Russian President Vladimir Putin issued a decree to increase the number of active troops to 1.5 million, making it the world’s second-largest force by manpower behind China, though it still lags far behind the United States in military spending. Putin also reaffirmed Russia’s “right” to use nuclear weapons in the event of aggression, revising the country’s nuclear doctrine to include attacks by non-nuclear states allied with nuclear powers.

REFLECTIONS FROM THE MANAGERS

The US interest rate cut of 50 basis points was announced during the Fed’s September meeting. The cut initiated a rotation towards cyclical companies that benefit from higher economic activity.

Big movements in China

September was an eventful month for the Chinese market, where stimulus packages in the form of better conditions for banks to lend money, including to the housing sector, were well received, while insurance companies and pension funds saw improved conditions for borrowing money for stock purchases. In addition, quantitative easing, which has been used for a long time in the west, was thought to be implemented in China too. The Chinese market rose sharply as a result. The sector rotation that began in mid-September may well continue for some time. It will be important to follow labor market statistics in the US in the coming months. Ideally, these should show stable employment, supporting a narrative that economic growth can continue, and the risk of recession is neither perceived to be imminent nor rising.

Upcoming seasonal unrest?

It seems we may be living in the usual autumn unrest, with everything from weak economies in Europe to spectacular events in the form of acts of war, strikes and hurricanes. Geopolitical confrontations in the South China Sea, the Middle East, and Ukraine, appear to be escalating rather than diminishing. There is substantial uncertainty regarding American politics on many important issues after the election. We live in an uncertain world. October could therefore, as in many other years, be a volatile month. We do, however, remain hopeful that the market environment will improve after the American elections. Unfortunately, there are no guarantees, but sentiment has historically fluctuated significantly between October and late autumn. Much points to better economic activity in 2025 which is what will give support to the stock market to move higher. We believe that our positions in small- and medium-sized companies, and companies that benefit from financially stronger end customers thus have particularly good prospects. However, the largest companies with stable growth have an important role to play, especially if we get an autumn storm. We believe their growth prospects are also good and improving, having recovered from the pandemic with its special demands and high inventory levels.