Global equity markets slumped in September, as investors fretted over the interest rate-policy path of the Federal Reserve. Bond yields worldwide continued to climb in September, dragging stock prices down by undercutting the appeal of risk assets. The sell-off of government debt occurred amid a flurry of central bank actions during the month, but it was the Federal Reserve’s announcement late in the month, about the trajectory of its rate-hiking campaign, that captured the attention of markets. As widely expected, the world’s most influential central bank held interest rates steady in September, leaving them at their highest level in 22 years. However, the pause was accompanied by surprisingly hawkish forecasts, with the U.S. central bank indicating that it may lift rates one more time this year while also adopting a “higher for longer” interest rate-policy stance to get domestic inflation back down to its target rate. Markets were further rattled by the Fed’s suggestion that it may not cut interest rates next year by as much as investors had earlier thought. The prospect of a protracted period of elevated interest rates drove up the yield on the benchmark 10-year US Treasury note by 47-basis points (“bps”) in September to 4.58%, its highest level in 16 years.
News of the Fed’s “hawkish pause” overshadowed an unexpectedly dovish interest rate-policy environment in the rest of the world. In the eurozone, the European Central Bank lifted interest rates for the 10th consecutive time in September with a 25 bps hike but hinted that rates had reached their peak amid signs that the economic outlook for the common currency bloc was dimming. The ECB did, however, state that it would keep interest rates at elevated levels “for a suficiently long duration.” Elsewhere in Europe, the Bank of England (“BOE”) and the Swiss National Bank surprised markets by holding interest rates steady during the month, though both left the door open for further hikes. Meanwhile, in Asia, the Bank of Japan maintained its ultra-loose interest rate policy stance and China’s central bank eased reserve requirements for banks in order to encourage more lending and spur the country’s stalled economy.
The final results from the second-quarter earnings season painted a mixed picture of how inflation headwinds have impacted company profits. In the US, 80% of the companies in the S&P 500 Index that reported results topped consensus estimates, exceeding the long-term average of 66%. The second-quarter earnings growth rate contracted 4.1% from a year earlier. In Europe, 49% of the companies in the STOXX 600 Index that reported results posted better-than-expected earnings, below the 54% that do so in a typical quarter. The year-over-year second-quarter earnings growth rate rose 0.6%.
Against this backdrop, equity markets in both the developed and developing worlds receded in September, with the latter outperforming the former. In the U.S., the S&P 500 recorded its worst-performing month of the year on news that the Fed may not cut interest rates next year as much as earlier thought. Across the Atlantic, the pan-European STOXX 600 performed roughly in line with the global benchmark, as worries over the dual pressures of inflation and slowing growth in the eurozone continued to weigh on risk sentiment. In Japan, the TOPIX outpaced the broader global index, thanks to a weak yen, the Bank of Japan’s highly accommodative monetary policy, and hopes that domestic growth will strengthen. Meanwhile, in China, Hong Kong’s Hang Seng Index, which is comprised mostly of stocks from mainland China, outpaced the broader global index, on positive market sentiment about the latest stimulus measures from China’s central bank. However, negative news flow about troubled developer China Evergrande intensified worries about China’s beleaguered property sector and muted much of the market momentum.
Information technology was the worst-performing sector in September, as the rapid rise in bond yields undercut the appeal of high-growth stocks. Energy was the best-performing sector, as shares of oil producers climbed in sympathy with the rise in oil prices stemming from production cuts from OPEC.
The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
Information and opinions presented have been obtained or derived from sources believed by Lazard Asset Management LLC or its afflliates (“Lazard”) to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the published date and are subject to change.
Allocations and security selection are subject to change. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including additional costs, competition, regulatory implications, and certain other factors.
Certain information contained herein constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “intent,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events may differ materially from those reflected or contemplated in such forward-looking statements.
Published on October 24, 2023