September is considered the worst month of the year. According to moneychimp.com, a consensus carried out from 1950 to 2015 has revealed that September ended up offering positive returns in 29 years and negative returns in 37 years, with an average return of negative 0.68%, which is worse than any month (read: Hedge Your Portfolio Against Sell-Off With These ETFs).
This September was also no exception with Wall Street seeing the steepest one-day plunge in months on September 9 following rate hike fears. Though a few market-friendly developments at the end of the month saved the key equity gauges from finishing in red deep, the month was overall soft. Among the top ETFs, SPY was flat, DIA was down over 0.5% and QQQ was up about 2%.
Let’ take a look at the events what drove the broader market in September.
Still a Dovish Fed
Turning piles of hearsays away, the Fed remained supportive in its September meeting. Downbeat job, manufacturing and retail data for the month of August held the Fed back from switching on the rate-hike button. Tepid inflation, muted business fixed investment and global growth issues were the other forces that stopped the Fed from policy tightening. However, the bank maintained its upbeat outlook on the economy (read: 6 ETF Areas to Watch as Fed Meeting Starts).
With this verdict, most of the gold mining ETFs returned in the 7–8% range post the Fed meeting. Still, gold mining ETF VanEck Vectors Gold Miners ETF (GDX - ETF report) was up just 0.04% in September.
The month was helpful for the long-ailing biotech sector. Increased mergers and acquisitions, some successful clinical trials and dovish Fed comments boosted the sector considerably. Biotech ETF BioShares Biotechnology Clinical Trials (BBC - ETF report) grew over 13.7% in the month (read: Biotech ETFs in Focus on Tobira Therapeutics' Massive Gain).
BoJ Stirs Stimulus
Though the Fed stayed put, the Bank of Japan (BoJ) overhauled its stimulus policy. The bank will now control the bond yield-curve. It will issue a zero interest-rate target for 10-year government bonds to counter deflationary threats and accordingly buy bonds.
The implementation of a long-term target was never tried before by BoJ. The BoJ also indicated that its goal for increasing the monetary base via asset buyback, set at 80 trillion yen annually, may now vary in the short term.
No more pushing of rates into the negative territory came as a welcome relief for bank stocks. WisdomTree Japan Hedged Financials Fund (DXJF - ETF report) benefitted post BoJ meeting.
Oil Price Jump on Output Cut Hopes
OPEC oil producers surprisingly clinched a “pre-accord” deal – for the first time in eight years – to curb production in an informal meeting in Algeria during September 26–28. However, the agreement will be finalized at its formal policy meeting at November end in Vienna.
The news came as a nice surprise given the ongoing differences between the OPEC biggie Saudi and Iran. Notably, Iran which has been boosting production since the international sanctions on it were lifted in January and intends to attain its prior market share -- 12.7% of OPEC output. Still, in a desperate attempt to contain free-falling oil prices, OPEC nations look to freeze an output cut deal in November.WTI crude ETF United States Oil (USO - ETF report) gained about 8.1% in the last five days (as of September 30, 2016).
Deutsche Bank Woes
Shares of Deutsche Bank slumped last week, with prices plunging to the levels of mid-1980s. Skepticism over the health of this German bank and its ability to pay huge potential fines caused this massacre.
As per a German weekly news magazine, the country’s government firmly rejected any aid to Deutsche Bank which has been slammed with a $14 billion fine in the U.S. “for mis-selling mortgage-backed bonds before the financial crisis of 2008.” If this was not enough, in June, IMF had indicated that “Deutsche Bank's global links make it biggest potential risk.”
This Deutsche Bank-related confusion and its contagion had an adverse impact on the European financial ETF iShares MSCI Europe Financials (EUFN - ETF report) , though the fund recovered at the end of September along with Deutsche Bank (which was up 14% on September 30). EUFN lost over 2.2% in September (read: European Financial ETF in Focus on Deutsche Bank Woes).
Clinton Versus Trump
One of the most talked-about topics in September was definitely the first presidential debate between Democratic candidateClinton and Republican candidateTrump on September 26. Post debate, Clinton was perceived to have won it and thus put several investing areas in focus which are likely to gain or lose if Clinton makes it to the White House.
For example, risk-on sentiments roared back in the market (as Trump’s policies are deemed to be inward-looking). Mexican peso and the stocks were under pressure following fears of a Trump presidency as he vows to make Mexico pay for a wall along the border as a part of his immigration plan. However, since Trump seemingly lost the debate, Mexican peso soared and iShares MSCI Mexico Capped ETF (EWW - ETF report) gained strength. The fund was off 4.4% in September (read: Clinton Apparently Won First Debate: ETFs in Focus).
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