September Market Outlook
Although August was not full of interesting market and trading events, here are the most exciting things that we have been following and think might have a certain impact on the upcoming month.
Widely anticipated in investment and banking communities Jackson Hole Economic Symposium took place at the end of the month. However, not as planned earlier. As the Delta variant becomes a significant issue here in the US, the Economic Symposium and the Fed speeches were held virtually. Still, analysts, economists, and investors had an opportunity to hear what the Fed is thinking about the future monetary policy. As expected, the Fed signals that the gradual tapering is coming. What does it mean for an average investor? It means that the Fed is thinking about slowing down the financial support it has been providing by purchasing several financial products like bonds and mortgage-backed securities. It does not mean rising interest rates, though. It is clear that rates will remain near zero for the foreseeable future as economic growth and employment remain to be better and stronger. But it also means that we might start seeing much slower growth in financial markets and experts predict a significant correction by the end of the year. If true, such an event might be a great opportunity to buy the dip for a long-term investor. As a result, we remain optimistic about the financial sector and growth-oriented companies.
There also has been some interesting movement in the commodities market. The prices of several commodities went sharply down earlier in August as worries about slowing economic growth due to surging Delta variant cases began to elevate. In particular, we have been paying close attention to the oil price. Crude oil went sharply down in August as production remained strong while consumption appeared to slow down as one of the biggest consumers of oil China experienced some problems with Delta outbroke. However, as things normalized by the end of the month, crude oil prices return to $68 per barrel level, and yesterday’s OPEC+ meeting proved that the oil production to continue increase gradually. As we have been saying, oil and oil producers remain a very interesting subject as economies around the world continue to reopen and oil production maintains its pace. Moreover, analysts expect that the consumption of crude oil will return to pre-pandemic levels during 2022, given the level of current production, there might be shortages of oil significant enough to elevate oil price even further.
As we have been discussing throughout the summer, cryptocurrencies and Bitcoin continue to steadily grow. Once again, we remain skeptical as there is no clear understanding at what point retail investors will have enough and begin cashing out their positions. One trend that we see and continue to be optimistic about is that retail investors continue to exit the stock market and parking cash in cryptocurrencies. Furthermore, the latest data suggest that big institutions started to come back to trading as the summer season is ending and traders are slowly dragged back to offices. We start to see volumes increasing across the market and volatility slowly decreasing as an army of retail investors exiting the market.
Overall, the market in August was somewhat mixed and we expect to see a similar picture in the upcoming month. Considering a number of record highs and the current market return, there is not much room left for growth this year especially given the fact that we are sure to see the tapering sooner rather than later. One question remains, are we going to see a correction later this year and, if so, how big it will be.
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