September investment news
September is a really risky month, so everyone tells us.
Go back for decades, and you’ll find that on average, the stock market takes a bath at the start of autumn.
And this September, there are loads of reasons to be worried: the taper; Syria; German elections.
It’s all true, of course – September could go horribly wrong.
But it could also go horribly right.
In my view (and I am not one to play down the bearish side of a situation), there’s at least as much risk of a ‘melt-up’ from here as of a meltdown.
Here’s why – and what you should do about it…
How everything could go horribly right
Let’s start with Syria. Syria is an awful situation; it will end badly whatever happens. There is no happy outcome. So what’s the most likely one?
It’s clear that western voters do not want to get involved. The practical consequences of liberal interventionism can be seen in Iraq and Afghanistan. Rightly or wrongly, that’s raised the bar quite substantially for any leader who tries to use the phrase ‘surgical strike’ while maintaining a straight face.
So Barack Obama is likely to leap at any face-saving opportunities to back off. Russia seems to be offering one now, acting as a go-between. As long as Assad agrees to kill his population with non-chemical weapons, then we’ll leave him be. It’s a bad ending – like the rest of the potential endings – but it means the geopolitical fallout is minimised for now.
In investment terms, that could result in a sharp drop in thef oil price from here. Not to ridiculously low levels, but certainly enough to reduce the risk of a consumer squeeze at exactly the wrong moment.
Then you’ve got the ‘taper’. Markets have been fretting over the Federal Reserve slowing down the pace of quantitive easing since May. And next week we’ll get the big decision.
But it’s important to remember: this is only slowing down the rate of QE. Chances are the Fed will cut the amount it’s pumping in by $10-15bn. It could be less, it could be more. But the point is, it’ll still be buying a huge number of bonds each month. The Fed will also be at great pains to assure markets that this can be reversed, and that it doesn’t say anything about the timing of interest rate rises.
Given that bond yields have risen quite steeply since May, I reckon a fair bit of the fear of the taper is now priced in. Unless there’s a big surprise on the day, the potential for markets cratering off the back of it seems low.
However this is only food for thought