September lived up to its reputation for being a difficult month for the U.S. stock markets. The second half of the month featured increased volatility and two notable selloffs. The first dip was triggered by news of potential default by a previously little known Chinese real estate developer. Evergrande Group, China’s second-largest property development firm, issued a warning that they would be unable to pay some of their outstanding $300 billion in debt. Fears that this default would spread throughout the world markets caused a significant selloff on Wall Street. In a single day, the Dow Jones Industrial Average (Dow) dropped 614 points (1.78%), the S&P 500 lost 75 points (1.7%) and the NASDAQ sank 330 points (2.19%). This drop was further driven by concerns over the Federal Reserve (Fed) slowing their asset purchase plan, (which would reduce the amount of economic stimulus injected into the economy), the persistence of the Delta Variant of COVID-19, and the possibility of the US Government shutting down due to lack of congressional intervention on the budget.
Markets did rebound two days later as it appeared that the Evergrande default would likely be contained to China, which indicated they would take measures to prevent a compounding impact from the situation. By the end of the week, the markets had fully recovered from the drop, once again proving why we avoid emotional decisions during times of market volatility,
The reprieve from volatility was short-lived as the markets took another dive at the beginning of last week. This time around concerns over the budget showdown and lack of movement on the debt ceiling took center stage. Treasury Secretary, Janet Yellen, warned of dire consequences if the United States defaulted on their debt. Tech stocks led the decline as treasury yields rose. The Dow dropped 569 points (1.63%), the S&P 500 fell by 90 points (2.04%) and the tech-heavy NASDAQ lost 423 points (2.83%).
In other news, last week’s initial jobless claims came in at a surprising 362,000; most economists expected the number to be 335,000. Employment numbers are confounding economists: currently, 10.9 million jobs are unfilled, yet only 8.9 million Americans are currently unemployed. Wages have also risen this year by 4.9%, which begs the question, “Why aren’t workers returning to work?”
Looking to October, David Bianco, chief investment officer at DWS Group, said, “We’ve been talking about a spooky season – September and October – and the expectation of about a 5% dip from the high, which we’ve had on an intraday basis. But we’ve said we don’t expect a correction.” Indeed, Dr. David Kelly, Global Strategist for JP Morgan, expects the third quarter to show an economic slowdown. However, he also expects to see a speedup in the fourth quarter, “We are speeding more slowly.”
As of September 30th, the major markets all posted a dip for the second half of the month. The Dow declined by 970 points (2.79%), the S&P 500 shed 173 points (3.86%) and the NASDAQ dropped 713 (4.7%).