In September, the US stock market experienced its worst-performing month of 2023 since Silicon Valley Bank collapsed in March. The reality that higher interest rates could remain for a more extended period has weighed down on the AI hype, which buoyed the stock market for a major part of the year.
As inflation slows down, we see a resurgence in oil prices. Oil prices have soared by almost 30% since the end of June, with prices set for the highest quarterly gain since March 2022. In the coming months, we expect oil prices to stay high due to supply cuts from OPEC+’s Saudi Arabia and Russia, uncertainties in the Middle East region, and brighter outlooks in the two biggest economies, the US and China.
Here is a monthly recap of what happened in the broader economy and how our asset classes performed.
Asset Classes Overview
Stocks:
September was a rough month for the stock market across all sectors. The S&P 500 and NASDAQ 100 had their worst months of the year, with the tech-heavy NASDAQ 100 and S&P 500 down by 5.8% and 4.9%, respectively, while the industrial Dow Jones was down 3.5%.
In September, the S&P 500 Index plunged to its lowest since June. September’s selloff meant the S&P 500 closed Q3 down 3.7%. The Dow Jones Industrial Average also wiped out its entire gains for the year, closing Q3 down 2.6%. For Q3, the NASDAQ 100 was also down 4.1% due to selloffs in high-growth tech stocks.
The sell-offs in stocks and bonds and investors’ flight to safety have grown increasingly appealing as investors digest the “higher for longer” view carried through Fed Chair Jerome Powell’s press conference.
Our Rise Equity portfolio also closed the month negative (-1.75%), mirroring the momentum in the stock market. Amidst the sell-offs in the market, our market hedges and shorting positions are helping to reduce the impact of the overall market downturn on our stock portfolio.
As earnings season begins in full swing, we expect aggregate revenue to decline moderately due to weaker pricing power. Also, a high interest rate is expected to translate into rising financing costs, leading to lower operating leverage and profitability. Our investment team will analyse the earnings reports as they trickle in, making strategic changes to the portfolio as we head into the last quarter of the year. Additionally, as 13F fund managers’ reports are made public, we will analyse them to better position our portfolio for return optimisation.
Regardless of the current bearish market sentiment, we remain optimistic about our trading strategy and the business fundamentals of our portfolio companies. We are confident in our position in the market, and we encourage you to approach your investments with a long-term perspective: “buy low and sell high”.
Real Estate:
Our Rise Real Estate portfolio returned 1.17% in rental income for September from 1.07% in August. The ripple effects of high interest rates translate into higher mortgage rates, higher home prices, and higher rental income, which our real estate assets benefit from.
Last month, for the first time since 2000, mortgage rates crossed 7.8%, with the average new house payment at a record $1,900/month. Mortgage rates have now leapt from 3.9% pre-pandemic to over 7%. Also, existing home sales plunged to the lowest since 2010, making this period the least affordable housing period of all time in the US.
This couldn’t come at a worse time, as the housing market is already starved for inventory. Why? Homeowners are reluctant to list because taking on a new mortgage at today’s high rates is a non-starter for many. With demand already low, the scant supply is pushing prices even higher.
With this, we expect our real estate portfolio to continue to provide better returns to our investors due to high mortgage rates and low house inventory in the US. In a period of sell-offs in stocks and bonds, real estate provides another lucrative investment opportunity for investors. Our real estate asset class provides investors with stable and consistent cash flow and is a haven in these uncertain times.
Fixed Income
In the fixed income market, the selloff in global markets has gathered pace, and yields on 30-year Treasury bonds hit 5%, the highest level since 2007, as traders brace for an extended period of elevated interest rates. The benchmark bond (10-year Treasury) yields climbed above 4.5%, the highest levels since 2007, as investors weighed a more hawkish Fed, large US fiscal deficits, and persistent inflation.
US employment news also did not bode well for those focused on when the US Fed will start lowering interest rates. The labour market data showed job openings unexpectedly jumped in August. Investors are worried that if rates stay higher for longer and we slow down the economy far enough to battle inflation, the US economy will slide into a full-blown recession.
Fixed-income traders and investors are bracing for further bond sell-offs amid surging oil prices and a massive fiscal deficit, alongside the US economy’s continued resilience.
At Rise, our fixed-income investments generated a return of 0.83% for September 2023. This performance underscores the resilience and stability of our fixed-income strategy.
As we head into the last quarter of the year, a declaration of war dominating the headlines can’t be good for global markets. There’s also a lot of speculation that we’re likely to see a spike in oil. Even though there’s no direct relation to OPEC+ and oil supplies here, there is likely the perception that this will curtail supply, adding to an already tricky situation in the fight against inflation.