Coming September: The challenges ahead

Current status, market outlook and historical data

We are in the midst of a critical period that strongly reminds us of the situation in 1980-1982. Then, as now, we were faced with high inflation and a slowing economy, which required a significant reduction in interest rates. Today, we are seeing central banks considering cutting rates again in response to signs of a slowdown in the labour market and in the industrial economy. Despite these challenges, the economy has so far been held in balance by a strong service sector and a robust retail market in the US.

September: Challenges ahead

September is approaching, a month that has historically been one of the weakest in equity markets. Over the past 50 years, we have seen indexes like the S&P 500, NASDAQ and Dow Jones regularly decline in September. The average returns for these indices range from -0.5% to -1.5%. This trend, coupled with the upcoming US election period, suggests that we can expect increased volatility in the markets, which is likely to remain with us.

Perhaps this is related to the fact that after a beautiful summer comes the first rainy and cold days, when the pace of work picks up again, bringing more stress. Investors who have become accustomed to calm and less hectic periods during the summer may be more sensitive to changes and negative moods, which may affect their investment decisions. Otherwise, I cannot explain this seasonal issue. 😄

Historical performance of indices after the first interest rate cut

Below is a summary of the performance of the major indices in key periods after the first interest rate cut:

• 1980: After the 1980 interest rate cut, we saw the S&P 500 and Dow Jones rise 14% and 20%, respectively, from mid-1982 after previous declines.
• 2000: The 2000 rate cut was followed by a 10% decline in the S&P 500 and a 20% decline in the NASDAQ in 2001, while the Dow Jones fell 7%.
• 2007: The 2007 rate cut led to an initial rise, but was followed by the financial crisis, which caused the S&P 500 and Dow Jones to fall by more than 30% and the NASDAQ by more than 40% in 2008.
• 2020: after the rate cuts in 2020, we saw the S&P 500 grow 16%, the NASDAQ grow 40% and the Dow Jones grow 7% by the end of 2020.

Access to investments during the rate cuts

We always see new opportunities to invest during periods of interest rate cuts. While we continue to monitor traditional equity markets and other investment vehicles, we have expanded our portfolio to include precious metals, particularly silver, which often sees significant appreciation during periods of rate cuts. Over the past 30 years, silver has proven to be a stable investment during such periods, with returns that have exceeded 100% in some cases.

For example:

• In the 1970s and early 1980s during the period of high inflation and rate cuts after 1980, silver experienced significant gains. During this period, its price more than doubled, not only because of rate changes but also because of speculative demand.
• Silver also experienced strong growthduring the 2008 financial crisis following the rate cuts. From 2008 to 2011, when rates were very low, the price of silver rose from around USD 11 to more than USD 48 per ounce, an increase of more than 300%.
• Silver also posted a rise of more than 40%during 2020, when rates collapsed further due to the COVID-19 pandemic.

Expectations and reactions to the current market

We can see that the current market situation is showing signs of slowing down, but we cannot yet talk about a full-blown recession. The US consumer is still strong enough and this is keeping the economy on its feet. We are closely watching any downturn in the market, for example due to the carry trade, as an opportunity to buy at lower prices. However, should the economy begin to weaken comprehensively and indicate a stronger recession than we now expect, we are prepared to respond accordingly.

 

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Disclaimer:

This article is provided for informational purposes only and should not be considered investment advice, a recommendation to buy or sell securities or any other financial products. The authors make no representations as to the accuracy, completeness or timeliness of the information contained in this article. Readers should consult a financial advisor or other professional if they need specific investment advice or if they have questions about their financial decisions. The authors of this article are not responsible for any loss or damage caused by the use of the information in this article. Past years' profits are no guarantee of future profits.