September Stock Markets

As we all technically head back to business and some back to school, stock markets enter September at new highs.  But that could quickly change as new economic data shows slowing production and manufacturing.  As well, recent consumer data has also shown weak with spending slowing.  This may be in part due to supply shortages from semiconductors to housing but also due to demand slowing because of buyer exhaustion.  Fridays US Non-Farm Payrolls data came in weaker than all forecasts, which could be an indication of slowing a slowing US economy.

For instance, the great divide amongst vaccinate or not has led many to pullback from the jobs market.  Part of this decision is based on belief that corporations mandating vaccines is not moral.  Others have found entrepreneurship in new markets such as the GIG economy and online services.  But this deceleration in economic activity is becoming a global trend with slowing PMI readings in Asia and with China showing Manufacturing data slipping below expansionary levels for consecutive months.  Canada’s economy has also slowed and posted a -1.1% decline in GDP.  Sooner than later, investors will begin to worry about financial market valuations relative to economic conditions.

Eventually the US Federal Reserve will begin to taper down asset purchases.  Just this week South Korea raised overnight rates and it is possible Japan and China may also raise rates.  Notably this week, some large shifts occurred in the derivatives market, with institutions turning bearish.  This was evidenced by a change in Net Long vs. Net Short options positioning which is now positioned Net Short.  After staying net long $SPX e-mini futures for 10 weeks, hedge funds switched to net short — for a swing of 43.6k contracts net Put Contracts vs. Call Contracts.

September stock markets could start off with a quick selloff to shake loose hands.  Below we highlight our favoured big-cap names to play in the upcoming choppy markets we believe will happen.