Name: Seven reasons this quarter won’t deliver its usual joy for investors
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Seven reasons this quarter won’t deliver its usual joy for investors

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Skip to navigationSkip to contentSkip to footerHelp using this website - Accessibility statementOct 2, 2023 – 3.01pm&nbsp;or&nbsp;Subscribe&nbsp;to save articleAfter a tough end to a difficult September quarter, history says investors around the world will be hoping to charge into the final three months of the year with a bit of a spring in their step.Nigel Tupper, quant strategist at Bank of America in Sydney, has analysed global sharemarket returns stretching back to 1988 to confirm that August and September have indeed been the weakest two months for the MSCI World Index.But the good news is that two-thirds of gains in any given calendar year typically occur in the final 10 weeks of the year.“Sell in May, go away, and come back on October 12,” Tupper says.The seasonal trends are surprisingly solid across the globe. While the best month for US equities has historically been April, the best quarter is clearly the December quarter. In the Asia Pacific region (excluding Japan) and Europe the best month for returns is December, while emerging markets tend to finish the year well.AdvertisementResearch conducted by UBS a few years ago suggested October has tended to be the best month for the ASX, with April and December not far behind; UBS concluded that the outperformance of April and October reflected big buying of banks before their results late in the month.History should be respected, of course. But there are seven reasons why a fourth-quarter rally looks unlikely.The first is, of course, bond yields, which remain at levels not seen for at least 16 years and are at risk of pushing higher, according to the likes of BlackRock’s Larry Fink and Pershing Square’s Bill Ackman. Companies and consumers used the pandemic to bolster their balance sheets, which has helped so far limit the damage from higher rates. But the cracks – rising loan arrears, higher insolvencies, greater cost-of-living pressures – will keep building as yields push higher, or even just remain elevated.The second clear risk is the oil price, which threatens to reheat inflation and add to the slowdown in the global economy. The speed with which prices have moved (30 per cent in three months) is the particularly worrying thing here.AdvertisementChina is another potential headwind. While the iron ore price has rallied an impressive 25 per cent since late August on tentative signs of some improvement in the Chinese economy, this surge looks difficult to understand given the pressure on the Chinese property sector, where highly indebted developers including Evergrande remain stuck in the mud and home sales are still 30 per cent below last year’s levels.Australia’s annual general meeting season is another potential minefield. Putting aside the potential fireworks at the Qantas and Endeavour Group meetings, investors will be anxiously scanning trading updates from retailers and other interest-rate sensitive stocks. It seems unlikely that the pressures on households recently have abated, and it may well be that these firms need to digest another Reserve Bank rate hike in November.Given how closely Australia’s market follows that of the US, it’s also worth flagging three potential headwinds from that market.AdvertisementThe moratorium on student loan repayments is a potential problem for a swag of consumer-facing companies.The ongoing (and expanding) strike action at big legacy carmakers Ford and GM, where workers have been pushing for pay rises of up to 40 per cent, is another clear risk. The appearance of US President Joe Biden on the United Auto Workers picket line last week is a signal that his administration will tolerate and even encourage the labour movement’s push for higher wages, even as inflation fades.Finally, while a US government shutdown was averted this weekend, the new deal simply kicks the can down the road until November 17, and it also appears to have sparked turmoil in the Republican Party.&nbsp;or&nbsp;Subscribe&nbsp;to save articleFollow the topics, people and companies that matter to you.Find out moreAdvertisementFetching latest articles

Skip to navigationSkip to contentSkip to footerHelp using this website - Accessibility statementOct 2, 2023 – 3.01pm&nbsp;or&nbsp;Subscribe&nbsp;to save articleAfter a tough end to a difficult September quarter, history says investors around the world will be hoping to charge into the final three months of the year with a bit of a spring in their step.Nigel Tupper, quant strategist at Bank of America in Sydney, has analysed global sharemarket returns stretching back to 1988 to confirm that August and September have indeed been the weakest two months for the MSCI World Index.But the good...

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James Thomson

For 70 years, The Australian Financial Review has been the authority on business, finance and political news in Australia.

Seven reasons this quarter won’t deliver its usual joy for investors

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