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October 2, 2023 - "Wake me up when September ends".

* The title refers to the famous song by Greenday.

As feared one month ago, September proved to be a "brutal" month for investors. Equities had a weak start in continuation of the correction which started at the end of July. But what really hurt investors was the sell-off in the bond market, which pushed equities even lower during the last two weeks , impacting portfolios which are invested in both asset classes. A typical balanced portfolio is calculated to have lost close to 4% in this period.

US equity markets were hit the hardest, with the S&P500 losing 5% for the month and Nasdaq falling almost 6%. Europe, as a whole, managed to perform better with the help of the UK, which bucked the trend and registered gains in the same period and the Swiss market which lost only 1% in September. As a reminder, those two European markets had not participated in the previous rally, hence investors chose to sell primarily the stocks and sectors which had moved significantly higher in the first eight months of the year (Technology, European luxury etc).

But we are entering today the fourth and final quarter, which is historically the best period of the year. The S&P 500 is up 4.1% on average and is up nearly 80% of the time, looking at historical data going back to the 1950s. And If we take into account only the fourth quarters which came after a bad September, the results are even more encouraging, with the sole exception of 2008 and the Lehman Brothers collapse at that period. We should also mention that October is the month when the lows are registered, as it happened also last year. Therefore with a little patience, we should be getting soon out of the current drama and into brighter days ahead.

The bond market sell-off picked up speed last week, as Italy announced a larger than expected deficit for next year, which means higher borrowing needs and higher debt levels. Bond yields spiked by more than 20bp on the news, with the German 10-year reaching almost 3% , the highest level since 2011. Italy's 10-year bond yield jumped to almost 5%. Fortunately, buyers moved into these attractive levels and after some positive inflation data on Friday, the bond market recovered part of the lost ground. The 10-year German yield finished at 2.84%, down almost 15bp from the previous day. US yields were also volatile but did not register any big moves for the week. The 10-year US Treasury yield finished the week at 4.58%, almost exactly where it started and after visiting the 4.70% level briefly.

Eurozone's September inflation numbers were much better than expected. The headline CPI number fell to 4.3%, the lowest level since October 2021 and almost a full percentage point down from 5.2% in August. Even more importantly, the Core CPI (which excludes food and energy) fell to 4.5%, down from 5.3% in August, as prices for services rose by much less than expected. This is important because consumer goods' inflation has already been falling significantly and in some items we have already moved into outright deflation (raw materials, used cars etc are lower than a year ago), but services were a "hot" industry up to recently, holding up inflation. After these inflation data, we can safely assume that the ECB is done with raising rates for the next 3-6 months at least.

In other positive news, US lawmakers averted a government shutdown in a dramatic day passing legislation with bipartisan backing to extend funding through mid-November. For that to happen, House Speaker (Republican) Kevin McCarthy had to break away from his conservative wing and sided with the Democrats who ultimately agreed to get on board. All but one Democrat voted in favor of the measure, while nearly half of Republicans voted against it. The surprise breakthrough came as Congress appeared to be too divided to pass anything in time to keep the government from partially shutting down at 12:01 a.m. Sunday.

US macro economic data continued to show the same mixed picture. The 2nd quarter GDP number was revised lower again, to a new and final estimate of 3.5% on a yearly basis and 1.7% on a quarterly basis, these numbers of course still being rather robust. Manufacturing continues to be weak, with the Chicaco PMI falling significantly to 44.1 vs expectations for a smaller drop to 48.0, from the 48.7 level in the previous month. The weekly initial jobless claims remained close to 200k, which shows a still very tight job market.

Gold fell to the lowest level since March, at 1850$ and is now 10% lower from the peak of 2050$, registed in April. The rise in bond yields as well as the strong USD have not been friendly to the yellow metal. However, we are now entering a period of strong physical demand from Asia, as the wedding seasons in China and India will begin and the current levels could provide an interesting entry point again for investors, with a longer term view.

Chart of the Week : The S&P500 is nicely set for a rebound.

We are reaching the support area for the S&P500, around 4250, where the 200-day moving average lies and the 50% Fibonacci retracement of the rally from the October 2022 low to the July high, as we had highlighted a few weeks ago when the correction had started to gain speed. The above chart shows the S&P500 (blue line) and the RSI (relative strength index) in green, which indicates whether the market is oversold or is overbought, for the last three years. When the RSI is high (close to 70) the market is considered overbought and a correction usually follows. On the flip side, when the RSI falls to levels close to 30, as it did last week, it is considered oversold and a rebound usually takes place. The last time the RSI was so low, was in October of last year, when the S&P500 registered its low. This does not mean that the RSI indicates the end of the correction on a longer term horizon, but rather gives a signal that the market is poised for a rebound, until the next catalyst moves it in any direction.


• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : Factset . Photo: https://


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