September stock markets repeated the pattern of a year ago: rising by mid-month then dropping to close below August end values. The S&P 500 Index ended the month down -3.5 %. Over the past three months markets have lost -8% and year-to-date stocks are down -8-10%. Stock valuations have fallen -4-6% from the values of a year ago. Notably, health care stocks lost value in September as well as technology. Bond prices are generally up. We may be in the beginning of the new bear market we have prepared for but so far it is barely a correction, defined as a 10% drop from the market high. Portfolios are ready.
The economic challenges in China continue to worry U.S. stock market investors. If the Chinese government can control their market and economy investors are satisfied. The interest rate hike promised for later this year has lowered in importance as a market mover. A rising concern is low inflation becoming deflation worldwide. The U.S. CPI has lowered from the drop in oil prices over the past year to a negative number, or mild deflation. “Core CPI” that removes food and energy prices has risen to 1.8%. A flat CPI, including energy and food prices, accompanied by economic growth would lift the stock market while an ongoing deflationary trend would have a negative impact on stock prices. Lower prices result from lower demand for goods and services. Two causes of the worldwide deflationary trend are increased robotics applications (fewer jobs) and an aging population of consumers who spend less.
The pear tree that squirrels and chipmunks stripped of green fruit last year now offers an abundance of ripening pears. Bunnies enjoy the dropped ones and the honeybees work on the open fruit they leave behind. Abundance offers plenty for everyone. Like every good thing we savor it in season.