After successive monthly gains that saw record index prices, U.S. equity markets declined in September. The S&P 500 fell 4.8%, the Nasdaq Composite dropped 5.6% and the EuroStoxx 600 declined 3.8%. The Vulcan Intrinsic Value portfolio benchmarks; i) MSCI World All Country Index (70%) declined 4.6% and, ii) the FTSE Canada Fixed Income Universe Bond Index (30%) decreased 0.31%, for a weighted average decline of -3.25%. In comparison the Vulcan Intrinsic Portfolio dropped by 1.96% for the month of September and is up by 19.6% for the year.
The catalysts for the declines range from the China Evergrande crisis, surging Covid-19 delta variant cases, higher inflation, supply chain disruptions, the US Federal Reserve’s plans to buy fewer bonds in the months ahead, and geopolitics.
Global fixed-income yields have shown signs of bottoming as concerns over COVID-19 variants and risks to the economic outlook remain elevated but seemingly still manageable. The US Federal Reserve continues to take steps toward a formal announcement on asset purchase tapering plans. These factors may suggest an increase in volatility in the near term.
Looking forward, October will see earnings season arrive as calendar year-end companies report their 3rd Quarter earnings. At stake is whether the big surge in stock prices earlier in the year are still justified given the potential impact of the pandemic and higher inflation on corporate inputs.
We will be seeking and assessing earnings guidance for full year 2022; if needed we may adjust our models and prices targets if metrics, ratios and figures are not tracking in the direction we are expecting.