We are now one week into September and it’s fair to say it is following some historic trends. September has been known to be the worst month in the US stock market. Some of this historically relates back to the 9/11 attacks and the Lehman Brothers bankruptcy which both happened in September.
Last week saw NVIDIA drop by nearly 10%. That equates to $279bn, which is the largest drop ever in the US by one company. The company will have to provide information on this significant drop under US law. This was mainly on the back of a wider market sell off caused by weak manufacturing data. The data release brought concerns over the US economy in general.
The S&P 500 also dropped around 2%, the NASDAQ dropped 6%, and the VIX (volatility index) increased by over 30%. Earlier in the summer there was a market rotation from the mega cap US stocks into small caps. Warren Buffet sold 50% of his shares in Apple. NVIDIA even reported a 122% rise in Q2 revenues, but the potential for a market slow-down has caused investors to think about diversifying.
The sensitivity large cap stocks have to market data is beginning to show, and the volume at which they fall can be cause for concern. Passive investing has played a part in making these mega-cap companies behave this way. My colleague Dan Cartridge wrote an excellent piece on Friday (https://www.hawksmoorim.co.uk/research/articles/passive-distortions/) about the distortion passive investing has caused for mega-caps. This is a worry for investors as it increases the mega-caps volatility and can create significant downside risk.
The July scare was caused by some potential policies being released that would put further restrictions on China. The policy would restrict chip making equipment being sold to China. This will have a huge impact on semiconductor supply chains globally, as it will affect the total amount of chips being manufactured globally. On the back of this NVIDIA fell 3.3%, but it had a global impact. In Europe ASML fell 7.4%, in Japan Disco Corp dropped 4.5%, and Lasertec sank 5%.
To add to the weak manufacturing data, the US treasury yield curve has disinverted, and is now broadly flat. This is significant as this is the first time in 26 months. It suggests that investors think growth and inflation will slow so 10-year yields will be lower. Also last week job data for the US added to investor concerns, the total vacancies vs total unemployed is close to a 1:1 ratio. This data came from the JOLTS survey, however, the non-farm payrolls showed employment in the US is still growing but just more slowly. These numbers are important and hint that investors see the risk of a recession is greater. The Fed still haven’t cut interest rates yet, but some see this as the turning point for the Fed to beginning its rate cutting cycle.
All of the above has played into September following its historic trend of being a bad month for US markets. Unfortunately, I have one more bit of bad news before the positive. During election years the trend of weak US markets tends to bleed over into October as well. Volatile markets are to be expected, especially in the US and this will have impacts on other global markets too.
But a potential positive is the first 100 days of a presidency can bring strong S&P 500 returns. I should be clear, I’m talking about the first 100 days from inauguration day (January 20th). If you take 100 days from election day you do get different numbers. Biden, Trump, and Obama all had strong positive 100 days. The S&P was up 8.6% for Biden, 5% for Trump, and 8.4% for Obama.
On average since 1929 the S&P has been up 3.4% in the first 100 days of the last 24 presidents. To further this, the next 100 days of a presidency is even better, over the last 24 presidents, for the second 100 days the S&P averaged 4.8%.
Now not all presidents are made equal. This data comes from the S&P being up 14 out of the last 24 presidents, this includes 9 out of 13 democrats, and 5 out of 11 republicans. I will also add that presidents get a lot of credit and blame for these numbers, definitely more than they deserve. But it pre-dates back to President Roosevelt, which puts the first 100 days of a presidency in the spotlight, and measures how much impact a president can have in their first 100 days in office.
Emily Cave – Research Analyst
FPC24227
All charts and data sourced from FactSet
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