The traditional seasonal view of September as a potentially challenging month for equity markets raises the question of which factors might confirm or temper this trend under current conditions. Of particular relevance here is the development of government bond yields, which serve as an indicator for the general interest rate environment.
Global equity markets have been supported for some time by strong nominal growth, particularly in the United States, where high corporate margins are observed. It is important to consider that corporate profits in nominal terms correlate with the development of nominal growth in the medium term. The current strong nominal growth is largely driven by high budget deficits and by the investment boom in artificial intelligence (AI). This trend is expected to continue in the coming months.
Inflation Dynamics and Interest Rate Effects
Historical analyses show that an inflation rate in the corridor of 2% to 4% has proven beneficial for corporate profits. Any signal confirming the continuation of this dynamic tends to support equity markets. The flip side of robust nominal growth manifests itself in high long-term interest rates in both the US and Europe. Interest rates for 10-year bonds tend to adjust to the average nominal growth of previous years in the medium term.
Traditionally, September is a month of increased activity and potential volatility for various reasons: the return of central bankers from their summer break, the focus on upcoming political events, and the resumption of bond issuance after the summer recess contribute to this. Conversely, any development that undermines the scenario of sustained strong nominal growth would act as a drag on equity markets. Potential cuts in US budget spending after mid-term elections could represent such negative news.
- —Positive developments in Ukraine could have a stabilising effect.
- —A de-escalation in the Strait of Hormuz would also be beneficial.
- —A further escalation in these regions could push inflation above the 2–4% range.
- —Such a scenario could lead to stagflation.
François Rimeu, Chief Strategist at Crédit Mutuel Asset Management, emphasises that precise observation of these factors is essential for assessing market developments. For the real estate market, these connections have significant implications regarding financing conditions and general investment sentiment.
