09/09/2024

The adverse seasonal nature of September started off strong, and the MSCI World Index closed out its worst week since September 2022. September has been a down month for markets in the last four years, including the last election year in the United States. In 2024, with elections that seem particularly uncertain on the other side of the Atlantic, economic and political risks kept investors in a heightened state of alert.

Last week, however, fears that the planet's leading economy was slowing down was the clear protagonist, and the aversion to risk spread through a multitude of financial assets, penalizing those securities with the most exposure to the economic cycle, and benefiting those with more defensive characteristics.

Fixed-income investors priced in faster cuts in interest rates by central banks, as Treasury bond yields reached their lowest level since 2022. Commodities also sent warning signs about the prospects for the consumption and investment cycle. Oil erased all its gains from 2024, while the price of copper has fallen in 13 of the last 16 weeks.

In general, the last week reminded us of the turbulent episode of early August, when the first signs of weakness in the American labor market caused bond yields and stocks to collapse in a storm of volatility that faded as fast as it had appeared. The movements of the last week reflect the same set of concerns that led to the first fall, as investors fear that the world's largest economy may be on a downward slope to a recession, and that the Federal Reserve no longer has any margin to stop it, considering the delayed effect that monetary policy has on the real economy.

Investor jitters were once again driven by the labor market. The August US jobs report showed a new deceleration in hiring. A total of 142,000 new jobs were added, a figure that was below the consensus forecast of 165,000. In addition, the jobs created last July were revised downwards from 114,000 to 89,000.

However, other aspects of the jobs report were more constructive, with the weekly hours worked in August increasing slightly. In addition, against a backdrop where the average hourly wage increased at a monthly rate of 0.4% after a 0.2% reduction last July, workers were able to demonstrate they had some bargaining power. The unemployment rate, meanwhile, fell in line with expectations to 4.2%, down from the 4.3% registered in July.

In general, it seems clear that the labor market is continuing to cool, although it's not giving convincing signs that we are in the preliminary stages of a significant economic deterioration, which would require a cut of 50 basis points at the September Federal Reserve meeting. In this regard, it is important to note that we see no indications in this institution's communications that such a move is in the works. After the jobs report was published, the chairman of the New York Fed, John Williams, indicated that the data were consistent with the gradual easing of the labor market that began some months ago, and reiterated his view that we are moving towards a solid growth scenario, with an unemployment rate at around current levels and additional deflation.

Recent days also saw problems emerge with the technology sector, as the Philadelphia Semiconductor Index lost over 12 percent over the course of the week, its biggest weekly decline since March 2020, smack in the middle of the pandemic. The sector's problems were reflected in Nvidia's share price, which fell almost 14% in the week. The company, which had just borne the brunt of a bad quarterly earnings report, encountered a number of additional obstacles, like the news that the US Justice Department has asked the company for information as part of an antitrust investigation. Of course, the trade policy that would stem from a potential Trump victory in the elections also weighed on the semiconductor industry.

In sum, the main global benchmarks started out September in a very bearish mood, giving back practically half the gains made since the lows of August 5. Fears of a rapidly cooling labor market in the United States set the tone for prices during the week and again awoke the ghosts of August. In this regard, the next macroeconomic news will be essential, and we believe they should help reassure investors on the road to an orderly economic cooling in the world's leading economic power.