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The Bad: The September Effect – A Northern Hemispheric Hangover?

September – a month synonymous with summer excitement and allergy season in the southern hemisphere. One might relate the month with positive connotations, rather than the unfortunate reality that it has historically been the worst month for the S&P 500. The index has declined 0.7% on average during the month of September since 1945, according to data from CFRA, an investment research company. September 2023 has been no different, with the year’s winners such as Alphabet, Microsoft, and NVIDIA all falling during the month. While the fundamentals of the companies have not shifted, the pullback forms part of a market cycle that ebbs and flows. Shares can often pullback by 5% or more during the course of the year, and this month’s S&P pullback of 5.2% is just part of this normal cycle for markets. The VIX, often dubbed the ‘fear index’, rose 33.1% during the month, which reflects higher expected volatility in the market.

The most obvious driver was Jerome Powell’s hawkish speech, where he revealed the possibility of another US rate hike within 2023 and reinforced the Fed’s “higher for longer” narrative. This concerned the market, leading to 10-year US Treasury yields reaching 15-year highs at 4.566%. Investors already had to deal with the Brent crude oil price spiking by 9.1% during the month due to Saudi Arabia curbing oil supply, therefore one can understand why investor ‘fear’ has increased during the month and why riskier assets such as shares were sold off.

Source: Eurotrader

Each year has its own reasons for the ‘September effect’. This has not stopped speculation regarding the anomaly. Many believe that institutional investors’ quarterly portfolio rebalancing (typically at the end of September) adds to market volatility. Additionally, September marks the end of the summer season in the northern hemisphere, where investors returning from their vacations may cause additional volatility. The infamous phrase “past performance is not an indication of future performance” and its variants have been plastered across brokerages around the world, and not without good reason. One cannot solely rely on historical information to make investment decisions. At High Street, we have a forward-looking approach, where the fundamentals of a company and its future growth profile are at the forefront of our decision-making.

& Bulls in the China Shop: The IPO Window Breakthrough?

Initial public offerings (IPOs) mark a pivotal moment for a company, providing them the opportunity to raise capital from public markets and have their time in the sun. These events are not only significant for those participating but can also signal broader market enthusiasm and increased risk appetite. IPOs usually follow periods of robust market performance. A surge in IPO activity can inject further momentum into the market, leading to improved valuations across the board. The recent spike in IPOs could therefore be evidence that the light at the end of the tunnel may be approaching but investors should approach it with caution. 

Source: istockphoto.com

The use of cornerstone investors to help IPOs through the current market conditions is becoming increasingly popular. These cornerstone investors are allocated a predetermined number of shares providing early backing for the IPOs before they are floated to the market. The highly anticipated listing of ARM, a British semiconductor company, followed trend with pre-IPO interest from large tech players Apple, Google, and Nvidia. The share price initially shot up 25% above the IPO price, however, quickly gave back those gains in the ensuing days and has remained around the IPO price since then. The IPO pop experienced by ARM is not unique and is one of the reasons investors should be cautious in getting caught up in the pre-IPO hype and allowing it to influence their decisions.

September has seen a mini procession of tech IPOs being led by Instacart and ARM with many hoping they would smash open the IPO window and bring some positive momentum. The global IPO market has been subdued over recent periods, with the first half of 2023 recording a 5% and 36% decrease year on year in IPO listings and capital raised respectively. The depressed results are indications of an environment of reduced economic growth, hawkish monetary policy and geopolitical tensions remaining tense. Larger deals came to market in the second quarter and that momentum was predicted to follow on in the second half of the year. The increased interest within the IPO market is a positive sign that participants are eager to shake off the slump and launch into 2024.