September turned out to be a ‘true-to-label’ month for the stock market investors. Historically, September has remained a lackluster month and even in 2022, the markets went down over 8% amidst a dwindling economic scenario in the US. In fact, the first three quarters of 2022 have consecutively resulted in negative returns for investors. Now, all eyes will be on October’s performance and whether the stocks go higher so as to end the year on a reasonably better level.
US Fed has a task at hand and the battle to tame inflation is still on. Dr. Joseph Thomas, Head of Research, Emkay Wealth Management says, “The likelihood of further aggressive tightening by the Fed and the other central banks, the continuing depreciation of emerging market currencies, the potential for an economic slowdown in the global economy etc. have been the major factors that have influenced the markets.”
“What has been impacting the markets most is the aggressive stance of the Fed which might expose the US economy to a full-fledged economic slowdown. Such an event may have consequences for the whole world. The geopolitical tensions which are mainly from Eastern Europe and the decision of OPEC to cut production and supply also challenged the markets. These factors will continue to hold their sway in the coming weeks too,” adds Dr. Thomas.
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José Torres, Senior Economist at Interactive Brokers shares what October will bring for markets and on the economic front. October marks the beginning of the third quarter and it is likely to be filled with market volatility against the backdrop of surprises to the upside and surprises to the downside.
Investors are eager and nervous to realize how dovish or hawkish global central banks become as tighter financial conditions and higher interest rates weaken economic performance and threaten financial stability.
Inflation and GDP readings will provide details on how price pressures are evolving and how economic growth is holding up. The Consumer and Producer Price Indices on October 13 and 12 respectively will provide us with a fresh look at inflationary pressures.
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U.S. Jobs data may fry the thermometer because the labor market is on fire against the backdrop of labor shortages and rising wages. The Jobs Report will arrive on October 7 and will provide insights into how hot the U.S. labor market is.
Real estate construction activity on October 19 and PMIs for manufacturing and services on October 24 will provide clues as to how tighter financial conditions and higher interest rates are affecting some of these cyclical, capital-intensive, interest rate-sensitive industries.
Earnings seasons for the 3rd quarter kick into high gear in the coming month. Earnings season will tell us how companies are managing through a difficult macroeconomic environment of slowing demand, rising expenses, and a firm dollar with significant implications for equity prices and bond yields.
Geopolitics remains a wildcard with investors hoping for peace, resolution, and mediation.
For better or for worse, we’ll likely gain further clarity on these topics in October as decisions are made, economic indicators are released, and earnings are announced while markets shift simultaneously.
Inflation is a tough opponent while weakening economic conditions and market volatility are the expensive costs of victory. The resolve of central banks will be tested further in the coming months and the world will be watching to see if they stay true to the inflation fight or buckle amidst market volatility and weaker economic performance.