I. Performance of Global Equity Indices (in US dollars)
Data source: Bloomberg, 2024/09/02-2024/09/08, compiled by Tiger Brokers
II. Key Market Themes
i. September Calendar Effect Strikes, U.S. Stocks Plunge to Record Weekly Drop—What's Next?
Last week, U.S. stocks experienced a September hit, with the Nasdaq 100 Index $纳斯达克100指数(NDX)$ dropping 5.89% in a single week, marking its worst weekly performance in nearly two years, despite no significant shifts in fundamentals. As a result, discussions about the September calendar effect in the market have started heating up.
According to statistics from Bank of America (BofA), over the past 100 years, U.S. stocks generally perform poorly in September, with the S&P 500$标普500(.SPX)$ having more than a 50% chance of declining, with an average drop of 1.2%. Interestingly, when factoring in election years, the statistical outcome slightly improves, but it remains significantly worse than in other months.
Looking purely at the calendar effect, there is no need for excessive panic at present. After all, the S&P 500 has already dropped over 4% in the first week, far exceeding the average decline. Additionally, BofA's statistics reveal that after elections in Q4, there is often a good rebound. Of course, the calendar effect is a statistical result, although it reflects some common trends, it cannot accurately guide predictions. A rational approach requires analyzing the specific current situation.
Data source: Bloomberg, compiled by Tiger Brokers
ii. Mixed Economic Data Increases Market Tug-of-War—How Much Will the Fed Cut Rates in September?
Last week, multiple U.S. economic data were released with mixed results. On the one hand, the manufacturing PMI slightly rose from the previous month but still fell short of expectations; on the other hand, the services PMI continued to exceed expectations, remaining above the expansion-contraction threshold. Additionally, the non-farm payroll and unemployment rate data were also delicate.
In terms of non-farm payroll, it was very weak economic data. Only 142,000 new jobs were added in August, again significantly below market expectations. Moreover, data from June and July were significantly revised downward, bringing the average monthly new jobs over the past three months to just 116,000. It’s likely that August data will also be revised down in the future.
However, at the same time, the August unemployment rate data was relatively optimistic. The unemployment rate continued to decline, recording 4.2%, which basically met market expectations. Additionally, both month-on-month and year-on-year average wages rose, exceeding expectations. Overall, while the U.S. economy is slowing down, it's not in bad shape.
Data source: Bloomberg, compiled by Tiger Brokers
In this environment, the market’s tug-of-war between bulls and bears is intensifying, mainly focused on whether the Fed will cut rates by 25bp or 50bp in September. Interestingly, after the release of the non-farm payroll and unemployment data, heavyweight Fed officials, including New York Fed President Williams and Fed Governor Waller, all spoke out, but without exception, they avoided addressing the issue.
As of now, market pricing indicates that a 25bp cut in September is favored, with about a 70% probability. We believe that while recent economic data is chaotic, it is not extreme or bad enough to change the Fed's stance. From the Fed's perspective, there’s no need to be led by the market. A sharp rate cut could trigger market panic. A 25bp cut in September, along with dovish guidance, might be the most appropriate strategy for a soft landing at this time.
Data source: CME Group, compiled by Tiger Brokers
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