The bear market continued in September, equities saw large corrections as market sentiment deteriorated significantly on the back of aggressive monetary policy expectations, as well as fears of economic recession. Over the month of September, all 3 major indices saw large crashes, the Dow, S&P 500, and the NASDAQ lost 8.84, 9.34, and 10.50% respectively.

The problem of high inflation remains in place. Although energy related items have slightly eased, other sections of the inflation basket have picked up the slack, with wages and shelter costs contributing more to the CPI. In response to the situation, the US Fed will likely continue to tighten their monetary policy, with Fed Funds rate expected to peak around 4.5% to 5.0% in 2023. The macro backdrop remains largely unchanged, monetary tightness will exert pressure onto investment market valuations, business and consumer sentiment will also be hit, driving recessionary risks higher.

Economic indicators showed mixed signals, though the key labour market remains red hot, with initial and continuing jobless claims still lower than pre-pandemic levels. Although job vacancies have slightly come down from their earlier peak, it remains significantly higher than pre-2020, suggesting that the labour market remains very tight. We think that Fed pivots are unlikely in the short term, not before we see significant improvement in the labour market. Given the unchanged backdrop, although short term rebounds are possible, expect further correction before the market hits the trough. We shall refrain from building additional equity exposure in the US equity market in the short to medium term.