Monthly Market Review - September 2023

Published on
October 9, 2023

Global markets continued their slide in September, as familiar concerns about inflation and higher interest rates persisted. The MSCI World Islamic Index fell by 3.3% in August, while the Dow Jones Sukuk Index fell 1.0%.

The big story in September was the rise in market interest rates, as measured by bond yields. In recent months the yield curve was significantly inverted, with short term (1-2 year) yields being much higher than longer term (10-20 year) year yields. This shape of the yield curve suggested expectations of a short (1-2 year) period of high interest rates followed by a longer-term period of lower interest rates, when economic conditions no longer warrant the current high rates.

In September, the shape of the yield curve changed to make longer term (10-20 year) rates much higher. The cumulative change was nearly 100 basis points in some cases, which resulted in a significant downward repricing of long-term bonds to yield interest rates close to 5% (in case of US 10-year treasuries), which are multi-decade highs.

The rise in market interest rates had a significant impact on both fixed income markets as well as equity markets, as higher interest rates means the present value of future earnings and cash flows is lower. Stock prices of companies whose cash flows are expected to occur mostly in the longer term future (i.e. growth companies) were more significantly impacted by the movement in interest rates.

Large tech companies, which are expected to grow and have higher future cash flows but are already cash flowing, were also impacted by the movements in interest rates, but they are also expected to be able to invest their free cash flows into fixed income products that now offer higher returns. As a result, these companies were more insulated from the impacts of higher interest rates.

Market participants have been keeping a close eye on economic data and central bank messaging for signs of how long interest rates will remain as high as they are now. The jobs and payroll data has continued to be strong, suggesting that inflation could persist over a longer period and lowering interest rates anytime soon would not be prudent.

While the US economy does not show signs of approaching a recession soon, market participants believe that interest rates cannot continue to rise without eventually inflicting some damage on households. In Europe, there are signs of a slowdown, but not necessarily a contraction.

Meanwhile, China’s economy is starting to pick up steam again, and the government is considering ways to open its stock market up to more foreign investment.  

The overall picture of the global economy is that it is healthy, and as a result the weakness in the markets is primarily due to the higher discounting of cash flows. As a result, we believe that the recent dip in markets presents a good buying opportunity for investors on the sidelines, both for equities as well as sukuks. Higher discount rates, both in the short terms and the long term, means that equities and sukuks offer better value than they did before, and this could translate into better long term returns.

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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.

Wahed Invest LLC (Wahed) is a US Securities and Exchange Commission (SEC) registered investment advisor. Wahed Invest provides brokerage services to its clients through its brokerage partner Apex Clearing Corporation, a member of NYSE - FINRA - SIPC and regulated by the SEC and the Commodity Futures Trading Commission. Registration does not imply a certain level of skill or training. Wahed does not intend to offer or solicit anyone to buy or sell securities in jurisdictions where Wahed is not registered or a region where an investment practice like this would be contrary to the laws or regulations. Any returns generated in the past do not guarantee future returns. All securities involve some risk and may result in loss. Any performance displayed in the advertisements or graphics on this site are for illustrative performances only.

Disclaimer: Wahed Technologies Sdn Bhd ("Wahed") is a Digital Investment Manager (DIM) licensee issued by Securities Commission Malaysia (eCMSL/ A0359/2019). It is part of Wahed Inc. Wahed is authorized to conduct a fund management business that incorporates innovative technologies into automated portfolio management services offered to clients under a license issued pursuant to Schedule 2 of the Capital Markets Services Act 2007. All investments involve risks, including the possibility of losing the money you invest, and the track record does not guarantee future performance. The history of returns, expected returns, and probability projections is provided for informational and illustrative purposes, and may not reflect actual future performance. Wahed is not responsible for liability for your trading and investment decisions. It should not be assumed that the methods, techniques, or indicators presented in this product will be profitable, or will not result in losses. The previous results of any trading system published by Wahed, through the Website or otherwise, do not indicate future returns by that system, and do not indicate future returns that will be realized by you.

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