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The annual September stockmarket bloodbath looks unlikely to happen

“Economically, Australia is in a good place compared to most western nations and there are currently no signs of rampant speculation in the market, where we also typically have higher levels of inflation. While we are experiencing an uncertain economy and a rise in inflation, according to the RBA this is just temporary."

The annual September stockmarket bloodbath looks unlikely to happen

While the S&P/ASX 200 ended 0.2% higher on Tuesday, we should see another slow start to morning trading on the ASX, after Wall St fell overnight.

Despite easing US inflation pressures, the Dow, NASDAQ and S&P 500 all fell.

Here’s what we saw:

  • Shortly after 6.20am (AEST) the SPI futures index was down 0.5%.
  • The Australian dollar is lower at US73.15c.
  • Iron ore fell again, slipping 1.8% to $US120.35 a tonne.
  • Brent oil edged up 0.1% to US73.60 a barrel.
  • Gold futures were up 0.7% to $US1807.10 an ounce.
  • Spot gold was trading near US$1,803 an ounce at the US close.
  • Base metals were down between 0.6 to 2.6% with aluminium hit hardest. Nickel was the least affected.

Australian markets

September is usually one of the weakest months on global markets. It’s when the bloodbaths are likely to happen.

The Stock Trader's Almanac reports that September is the month when the stock market's three leading indexes usually perform the poorest.

The trend has been dubbed as the ‘September Effect’.

You may ask, ‘Why September’?

Nobody really knows. It’s an anomaly. Some analysts put it down to seasonal behavioural bias, with investors making portfolio changes at the end of the northern summer. That obviously has flow-on effects to other markets.

This year, we are yet to see any indication of a bloodbath.

The ASX has lost ground this month, as has the US market, but a 2% fall is moderate considering the doom that could have set in with COVID lockdowns and restrictions, slowing annual growth and the reappearance of inflation.

So, will we see markets crash in the second half of September?

On current trends, it’s unlikely. The ASX has enjoyed monthly gains for 11 months in a row. However, lockdowns will continue to have an impact and some analysts are calling the market overheated.

Independent economist Jonathan Pain has recently stated, “If the market is about to experience its first meaningful correction of 2021, now is a pretty good time for it to happen.”

Pain says of the month of September, “The market was expensive, in fact very, very expensive: the signs of sharply rising inflation were everywhere except in Wall Street’s spreadsheets.”

Chief analyst at Wealth Within Dale Gillham takes a different view.

Gillham says, “Last week the Australian stock market fell over 2% and while this may add fuel to those who are propagating that the market will crash, we need to look at the bigger picture rather than what occurs on any one day or week.

“The Australian stock market is top-heavy with two of the 11 sectors effectively determining the direction of our market. The financial sector accounts for just under 30% of our total market while the materials sector accounts for just under 20%. Given this, it is not surprising to see the market was down, as both of these sectors fell heavily on Thursday. For the market to crash, we would need to see both sectors continue to fall considerably, which is unlikely.

“In 2007, the financial sector crashed 66% during the GFC, and while it rose from early 2009 to a high in 2015, it has failed to rise above this high and is currently trading around 10% lower than the 2007 high. The materials sector is also trading below its 2007 high but only just, as it broke above that level in May 2021 only to fall away again in the last month.  

“So what does this mean? Stock markets typically crash because of rampant speculation, which is an emotionally charged bull run where the masses suffer from the fear of missing out (FOMO). This also leads to the overuse of leveraging, as those with FOMO scramble to find as much cash as they can in an effort to profit from the bull market.  

“Economically, Australia is in a good place compared to most western nations and there are currently no signs of rampant speculation in the market, where we also typically have higher levels of inflation. While we are experiencing an uncertain economy and a rise in inflation, according to the RBA this is just temporary.

“We are also not seeing any signs of an increased uptake with leveraging because if this was the case, the stock market would be incredibly bullish right now. What we are seeing is higher levels of borrowing in the property market, which is forcing housing prices to rise to unprecedented levels in many areas. This in itself also supports the theory that the stock market will not crash, as money flowing into property cannot be invested in the stock market causing it to become overheated.”

Australian indices

  • ASX 200 fell 0.18% to 7,423.80
  • ASX24 futures fell 0.5% to 7,395   
  • S&P/ASX Small Ordinaries fell 0.12% to 3,528.30  
  • All Ordinaries fell 0.23% to 7,722.70 

US markets

Wall St was weaker, with investors absorbing a weaker reading on consumer price inflation. Investors are also factoring in rising cases of Delta.

Karl Haeling of LBBW Bank said investors may also be factoring that the Federal Reserve will soon start to remove some stimulus.

“It’s natural for the market to pause, and consolidate. And I think that’s really what it’s doing more than anything now,” he told AFP.

But “whether it lasts, you know, two more days or two more weeks, or how far it goes, I have no idea.”

US Indices

  • Dow Jones fell 0.8% to 34,577.57  
  • S&P 500 dropped 0.6% to 4,443.05   
  • Nasdaq fell 0.5% to 15,037.76

European markets

Markets were mixed in Europe with miners, banks and luxury stocks hit hardest on concerns of rising COVID cases in China.

European indices

  • STOXX 600 fell 0.0086% to 467.65  
  • German Dax rose 0.1% to 15,722.99
  • UK FTSE fell 0.5% to 7,034.06

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