The third quarter of the year comes to an end, a quarter that saw the S&P 500 rise 7%, despite ending the month on a slightly downbeat note. The major US indexes remain within a short irons striking distance of all-time highs. The FTSE 100 and Euro Stoxx 600, not fairing nearly so well, finishing the quarter approximately where they started them. Markets in Europe suffering over the past three months from concerns arising from the impending Italian budget and US trade wars. The FTSE 100, despite many of the companies benefitting from a fall in sterling, from Brexit uncertainties as overseas investors appear to worry holding an asset-based in sterling. The uncertainty surrounding the Italian budget adding to European equity fears on Friday as yields on ten-year Italian debt rises 10% to 3.15%.
The Vix fell on the quarter, bond yields in America rose culminating in the ten-year US treasury yield hitting 3.1% at one point this week. Neither the flattening of the US yield curve or more attractive yields from US treasuries have impacted US equity sentiment this quarter. Aside from US treasuries the other main story of the past quarter, particularly towards the end of the quarter, was the oil price. The rise of crude oil to over 80 dollars a barrel as a result of US sanctions on Iran and a lack of a supply response from OPEC. This has led to talk once again of the price hitting the magic 100-dollar mark. Rising oil prices, as we discussed last week, can impact economic growth, again equity markets have largely ignored the rise. Whether the oil price does reach 100 dollars, we shall see, but should it happen this may be the level the broader market may start to price in concerns. The final quarter is likely in the start to be dominated by the upcoming earnings season and the midterm elections.
The news flow for the week ahead will be dominated by the Purchasing Manager Surveys across the globe with the particular focus on Europe, China and obviously the US. September’s jobs report will also gain some attention after last months strong data report and the fastest growth in wages since the recession. The UK Markit surveys could give some indication if the ongoing uncertainty is starting to impact the economy.
September has been known to be a difficult month for equity investors historically and this one did have its moments, however, in the end, investors held their nerve. October too has been known be have its moments, 1987 being one of note.