The month of September was marked by increased volatility within the financial markets. At the beginning of September, after reaching new highs, US indices lost momentum; S&P 500 fell by -10% while the Nasdaq by -11.8% essentially due to the decline in technology stocks. Despite the recent losses, the S&P 500 is still at the level of eight week ago. In Europe and Asia, there has been a decline, more limited, of around -3% and -5%. The SMI, thanks to its defensive propensity, has remained almost unchanged.
These decreases are essentially due to some already known factors, such as:
Political uncertainty
The US elections are one of the main risks to the markets in the short term as well as the delay of the additional stimulus by the US Administration. It seems unlikely that this aid package will be agreed before the elections.
Raise of Coronavirus cases
COVID 19 infections are rising in several advanced economies and the spectre of a second lockdown (even localized) could further slow down the already difficult recovery of the economy.
Technology sector under pressure
The technology sector continues to lose ground and the Nasdaq has underperformed the overall markets. Technology stocks may remain under prossure in the short term. However, many tech companies are exposed to structural trends that keep their attractiveness high, especially on the long term.
The economic data remain mixed The weekly economic index of the New York Fed, which has been recovering strongly since May, showed a lateral trend in September.
Overall we think that the equity market could perform positively in the coming months, but we expected to have high volatility. Central banks will continue to provide liquidity, which is why equities will retain their relative attractiveness related to bonds yields, whick remain at their historical lows. In the medical field we expect further progress in the developement of an effective and safe vaccine against COVID-19. These expectations are corroborated by variuos reports from some companies operating in the health sector, that are already well advanced in the developement of a vaccine. An example is Johnson & Johnson, a major american company, what has recently announced the start of phase 3 clinical trials.
We also remain optimistic about a new fiscal stimulus package in the US, althoug is unlikely to be approved before elections.