September General Markets Comments

« Another one bites the dust » – Queen, 1980

Well, another one, and many others? Equity markets already did, as well as fixed-income securities overall. September saw the British Pound on its knees, Gold breaking down, Oil recording its largest loss this year and Credit Suisse’s CDS rising to 2008 levels; FedEx and Nike had very bad days on the stock exchange, and Italy’s spread versus Germany widens by the day . On the front, the Russian army also bit the dust and is losing ground.

All asset classes suffered in September, with the continuous pressure exerted by long term interest rates, which, once again, rose significantly.

With hindsight, it looks like under the direction of conductor Jerome Powell, we’re gradually picking up where we left off, before February 2020 and the Covid outbreak, which led to all kinds of excesses and aberrations, triggered by the profligacy of Central Banks and Governments.

The S&P 500 lost no less than 9.3% in September, and the Nasdaq 10.6%; the MSCI Emerging Markets sunk 11.9% and now lags all major indices, barring the Topix, which is only down 7.9% year-to-date (but the Yen cratered by 25.8% versus the dollar!). Growth stood behind Value, once again, and lost 10.2% last month; the MSCI World Growth is down 32.8% this year, versus -20.1% for the MSCI World Value. This has to be put in the context of ever rising interest rates: the US 10-year yield added 64 bps (+57 bps for Germany) and is now 232 bps higher than the level prevailing at the beginning of 2022 (+229 bps for the Bund). Oil abandoned 11.2% and Gold 3%. Credit somewhat resisted, with the Itraxx Crossover “only” down 41 bps.

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General Market Comments – February

February General Markets Comments

War, what is it good for? Absolutely Nothing. It ain’t nothing but a heart-breaker, Friend only to The Undertaker. Oh, war it’s an enemy to all mankind Edwin Starr, 1969

It is a heart-breaker to talk about markets in the current environment when we know what’s happening in Ukraine, with consequences far beyond financial markets.

In this highly frightening context, it should come as no surprise to witness weakness overall for most assets, barring some of the traditional safe havens like Gold (up 6.2% in February, but only 4.4% year to date), the US dollar or the Swiss Franc.

Equities fell, but so did Government bonds, which is quite amazing in such an environment, even though they ended up stronger this month than they had started. The US 10 year saw its yield rise by 5 basis points, the German Bund by 12 basis points, and to highlight the risk-off attitude adopted by investors, the Italian 10 year yield jumped by 40 basis points. Credit suffered its second consecutive month of significant drawdown with a -2.4% return for the Itraxx Crossover in February (-4.4% year to date).

On the equity side, despite encouraging earnings publications, there were no places to hide: the MSCI World abandoned 2.7%, the S&P 500 3.1%, the MSCI Europe 3.2% and the MSCI Emerging Markets 3.1%; Japan showed some resistance with a limited 47 basis points retreat for the Topix.

Heightened tensions in commodity producing regions, added to the perspective of severe sanctions against Russia, propelled most commodity prices to the upside: Oil surged by 8.6% and is now up 27.3% in 2022, while the broad CRB Commodity Index added 5.5% in February (+15.8% year to date).

Such a strong performance from Commodities, coupled with steady levels of interest rates, clearly favoured Value sectors in equity markets: although the MSCI World Value was down 1.8% for the month, it fared much better than the MSCI World Growth which fell 3.6%; on a year-to-date basis, the former is only down 3.1% while the latter largely lags with a negative 12.6% return.