For most of August it felt like we were on the brink of a stock market crash. But suddenly, the month looks like ending on a high.
Tuesday was terrific fun, with the FTSE 100 jumping 1.72% and my recent stock purchases suddenly looking a lot more hopeful. The index made further progress on Wednesday, but what about the month ahead?
History suggests September is the cruellest month for investors. Data going all the way back to 1928 shows Wall Street has fallen by 1.12% on average over the month. There are mixed views on why this is the case. Some blame a wave of selling when traders come back from their hols, but nobody really knows for sure.
It could be a bumpy month
The good news is that things tend to work out happily, with the final months of the year generally more rewarding. In that case, September is often a good time to go shopping for shares, taking advantage of any dips.
Investors then have to get through October though, also a bumpy month. The Bank Panic of 1907, the Stock Market Crash of 1929 and Black Monday 1987 had October’s fingerprints all over them.
All this is a bit silly, of course. Every investor knows the past is no guide to what will happen in the future. September could be wonderful this year. Or it could be rubbish. We’re about to find out, but three things concerns me.
Investors are still waiting to learn whether inflation will continue to fall, giving the US Federal Reserve and Bank of England the green light to stop hiking rates (and start slashing them instead, at some point).
Lower borrowing costs will ease the pressure on businesses and consumers, and get the economy moving again. We’re all very data dependent. If inflation is even more stubborn than we thought, we could get that crash.
Alternatively, if the central banks have overtightened and we’re suddenly hurtling towards recession, again, it could end in a crash.
Which brings me to my second worry. Chip-maker Nvidia and the whole artificial intelligence (AI) thing. AI may change the world but there’s an awful lot of hype about it. So much so that when Nvidia recently announced profits had doubled, its share price actually fell 6%.
This could go either way
With a valuation of 250 times earnings, it won’t take much bad news to scare investors. Given that US tech has been the main source of fun this year, that could trigger some nasty contagion.
Mentioning the c-word brings me to the third big worry. China. We all know the $300bn crash of property giant Evergrande Group is only the tip of the debt iceberg, and the country’s $3trn shadow banking sector is vulnerable. Beijing has stepped in to stop the rout, but only up to a point.
So we face three big risks going into September, of which the biggest is interest rates, as it has been all year. As an optimist, I don’t think we will see a full-blown crash. Markets have been resilient this year, and investors are positioning themselves for better days.
However, if share prices do plunge, I’m ready and will respond in the usual way. By going shopping for cut-price FTSE 100 shares.
