• After reaching new all-time highs towards the beginning of the month, global equity returns turned negative in September with the global index finishing 3.5% lower. This marked the first monthly fall in equity markets since the height of the pandemic lockdowns in March.
• The Global Equity Income Portfolio declined 3.4% over the month.
• There was no trading activity.
The US Federal Reserve’s, (the Fed) continued expansionary monetary policy even in the face of potential inflation as, foreshadowed at the Jackson Hole meeting, was reaffirmed with the Fed retaining zero interest rates and forecasting them to remain at this level until at least 2023. The Fed chairman highlighted the need for fiscal measures to support the US economy. Optimism over such a fiscal package triggered a month end equity rally. European Central Bank’s (ECB), president Christine Lagarde indicated at the end of the month that the ECB would follow suit in allowing inflation to rise unchecked for a period without raising interest rates.
As we wrote last month, in the long term, these policy moves are likely to continue to favour equities of companies with high-growth prospects.
There is no disputing that relative to history, equity market multiples are high. Though there is still some way to go to reverse the COVID-19 lockdown induced economic damage, we continue to forecast economic improvement from the currently depressed levels. While monetary policy remains so lax, even in the face of inflationary pressures as economies unlock, it is difficult to see how other asset classes can deliver real returns. Corporates tend to be relatively well shielded from inflationary pressures given their abilities to pass on price rises. Catalysts for economic recovery may come from vaccine announcements or from fiscal stimulus.