Market volatility continued in September with US markets down 2.5% for the month as measured by the S&P 500 TR Index. US markets are now down 5.3% for the year. International markets continued to struggle as well with the MSCI ACWI TR Index down 4.6% in September. Emerging markets have been especially hard hit and are down around 16% for the year, with all of the damage occurring in the 3rd quarter.
On Sept 17, the Federal Reserve decided not to raise interest rates from the zero boundary that they have been stuck at since the 2008 financial crisis. Since the Fed decision was announced on Sept 17, the S&P 500 is down almost 4% through the end of September. The last time the Fed raised interest rates was in July 2006, over nine years ago! The US economy seems to be doing well with low unemployment and low inflation. The rationale given by the Fed was mostly related to the uncertainty in the world economy, especially China. The Fed has meetings in October and December so it remains to be seen whether it will raise rates this year.
The US government still has not approved a budget for the fiscal year that starts October 1, 2015, but averted a shutdown by passing a short-term spending bill on September 30. This will keep the government open until around mid-December. It remains to be seen whether Congress will pass a budget before then. This could lead to further stock market volatility.
The Chinese stock market continued to struggle as well, dropping 4.8% for the month of September. The Shanghai Index is now down 5.6% for the year, but an incredible 41% from its peak in June. Concerns in China center around the slowdown in the economy, with growth predicted to be less than the official 7%.
October is often a challenging month for the markets. As such, market volatility will probably continue for a bit longer. Overall, this market correction looks a lot like the one that occurred in 2011. In 2011, the market ultimately bottomed in October, and continued to be volatile until December, before resuming its upward trend. It remains to be seen whether 2015 will continue to follow a similar pattern.
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