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By: Alex Carrick on October 5th, 2021

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Stock Market Indices in September: Catching Their Breath or Reassessing?

Economic News

For the first time in nearly a year, the four major stock market indices featured in Table 1 fell into a rough patch in September, all declining in a range that extended from -2.5% for the TSX to -5.3% for NASDAQ.

Stock Market Indices in September: Catching Their Breath or Re-assessing? Text Graphic

It’s uncharacteristic for NASDAQ to have the worst performance among the four equity price monitors. Serving as one depressant, the ethical practices of some of the biggest high-tech firms are presently coming under the critical scrutiny of Congress. 

Nor has it been usual for the Toronto stock exchange to outperform its American cousins. But in the latest month, the TSX managed a smaller retreat m/m (-2.5%) than the DJI (-4.3%), S&P 500 (-4.8%), and NASDAQ (-5.3%). Furthermore, on a year-over-year basis, the TSX’s advance of +24.5% exceeded the DJI’s gain of +21.8%.

During the last several months, the prices of many major commodities have been springing to life again and that’s put a livelier step in the share prices of the big resource sector owners who make up a significant part of the TSX index.

But what is one to make of September’s retreat by all four indices? Is it just a pause allowing investors to catch their breath before going on to new heights or is it a signal that a re-assessment of economic prospects is underway? 

The Pullback Was a Global Event

The first thing to note is that the pullback in equities in September was a global event. Another U.S. index, the Russell 2000, which monitors share prices for firms with smaller capitalizations, was -3.1% m/m in September. (It should be mentioned that the Russell 2000 lays claim to the biggest year-over-year advance among all indices globally, +46.2% (see Table 2))

As for major non-North American indices, Table 2 sets out that only one recorded a significant month-to-month increase in September, Tokyo’s Nikkei’s 225, +4.9%. The Shanghai Composite was basically flat, +0.7%, and all others fell with the Hong Kong Hang Seng setting an outer boundary of -5.0% (which, by the way, was still less than NASDAQ’s m/m setback of -5.3%.)

Three Concerns Are Impacting Share Prices

The concerns impacting share prices seem to coalesce around three issues. First, the coronavirus, and particularly its rogue variants, remain not yet fully tamed. The prospect of more economy-slowing lockdowns has not been totally removed from the table.

Second, inflation has heated up to the point where many analysts believe it will be an engrained and long-term phenomenon and not just the temporary nuisance, due mainly to supply shortages, that central bankers have been hypothesizing. Rapid general price movement carries the risk of quicker action to rein in monetary stimulus and raise interest rates.

Third, there’s the Evergrande factor. Evergrande is a huge Chinese real estate firm. It rode to success and immense size (i.e., branching out into other sectors of the economy and even buying a soccer club) during an earlier boom in homebuilding activity in China.

But now China’s population has aged, there’s a disproportionate number of single adult males and the prospects for residential real estate sales and appreciation are no longer what they once were. Evergrande is on the cusp of defaulting on large domestic and foreign loans.

The danger is that without strong intervention by Beijing, a collapse by Evergrande could cut a wide swath through China’s economy. Japan’s real estate collapse in the 1990s, followed by three decades of stagflation, is held up as the prime example of how badly matters might veer off course.

China’s remarkable record of ‘real’ (inflation-adjusted) GDP growth of +12% annually in the 00s and +6% to +7% per annum in the subsequent ten years has been a major contributor to world economic prosperity. Within its Asian economic sphere, and indeed on the world stage, there’s no substitute for China’s economy not performing well.        
Table 1: Stock exchanges - performances of key indices - September 30, 2021
Barely beating the S&P 500, NASDAQ led in terms of y/y percentage gain. Also noteworthy, though, was NASDAQ recording the largest m/m decline.
 
Sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE), and Reuters.
Table: ConstructConnect.
Graph 1: U.S. Stock Markets − September 30, 2021
As of closing Sept. 30, 2021, NASDAQ was +29.4% year over year and +33.5% compared with its 52-week low.
Latest data points are for September 30, 2021.
Red vertical lines denote Feb 2009 major 'troughs' for the indices.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Reuters & Yahoo.
Chart: ConstructConnect.
Graph 2: Performances of key stock market indices during latest 12 months
The long-term underperformance of the TSX relative to the other 3 indices is finally being overcome. In fact, while the TSX also recorded a m/m decline in Sep, its step back (-2.5%) was the smallest among the 4 indices.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE), and Reuters.
Chart: ConstructConnect.
Graph 3: Performances of key stock market indices since 2008-09 downturn
As of Sept. 30, 2021 closing values, % increases of key stock market indices since their Feb. 2009 major troughs have been:  NASDAQ +949%; S&P 500 +486%; DJI +379%; & TSX +147%. NASDAQ's 12-year climb has been astonishing! Without question, the U.S. economy gains a tremendous advantage from the strength of its high-tech sector.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE), and Reuters.
Chart: ConstructConnect.
Table 2: Key Domestic & International Stock Market Indices - September 30, 2021
The Russell 2000 led all world markets year over year with a gain of +46.2%.
'"Ticker symbols" are in brackets. MSCI (formerly Morgan Stanley Capital International) is a leading provider of investment decision support tools, with indices as one specialty. "iShares" is a website that specializes in "exchange-traded funds", or ETFs, managed by BlackRock Investments LLC.
Data Source: 'finance.yahoo.com'
Table: ConstructConnect.
Graph 4: Stock Market Performances: U.S. & Canada vs Rest of World
Year over Year as of Month-end Closings, September 30, 2021
In Sept, on a m/m rather than y/y basis, only one index recorded a significant increase, the Nikkei 225, +4.9%. The Shanghai Composite was also up, but barely, +0.7%. All the other indices recorded drops, with NASDAQ in a rare  pessimistic moment performing worst, -5.3%.
iShares is a website that specializes in "exchange-traded funds", or ETFs, managed by BlackRock Investments LLC.
Data Source: 'finance.yahoo.com'
Chart: ConstructConnect.

About Alex Carrick

Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985.