Wall Street week ahead: US summer stock rally at risk as September looms The 10.7% rally in the S&P 500 from its June lows is stumbling as it runs into what has historically been the toughest month for the U.S. stock market, sparking nerves among some fund managers of a broad sell-off in September. The S&P has been in a bear market since plummeting early this year as investors priced in the expectation of aggressive Federal Reserve interest rate hikes, but the index has rallied strongly since June, regaining half its losses for the year. But as investors and traders return from summer holidays, some are nervous about a bumpier ride in September, due to seasonal concerns and nervousness about the Fed’s pace of hikes and their economic impact. Also Read: Mcap of seven of top-10 valued firms tumbles over Rs 1.54 lakh crore The S&P 500 fell nearly 3.4% Friday after Fed Chair Jerome Powell reiterated the central bank’s commitment to taming inflation despite a possible recession. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell said in a closely watched speech in Jackson Hole, Wyoming. September typically is a down month for the stock market because fund managers tend to sell underperforming positions as the end of the third quarter approaches, according to the Stock Trader’s Almanac. “We’ve had a breathtaking run and I wouldn’t be shocked if the market takes a hit here,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Management Solutions. The S&P 500 could fall as much as 10% in September as investors price in the likelihood that the Fed will not start to cut rates as early as some had hoped, Janasiewicz said. September has been the worst month for the S&P 500 since 1945, with the index advancing only 44% of the time, the least of any month, according to CFRA data. The S&P 500 has posted an average loss of 0.6% in September, the worst for any month. The index is down 14.8% year to date and has been in a bear market, hitting its lowest level in June since December 2020 after the Fed announced its largest rate hike since 1994. Chief among the reasons for the gloomy outlook is a belief that the Fed will continue hiking rates and keep them above neutral longer than markets had anticipated as recently as a week ago, weighing on consumer demand and the housing market. Nearly half of market participants now expect the Fed funds rate to end the year above 3.7% by the end of the year, up from 40% a week ago, according to the CME FedWatch tool. The fed funds rate is currently between 2.25 and 2.5%. The Sept. 20-21 FOMC meeting will also likely drive volatility during the month, prompting the S&P 500 to fall near its June lows, said Sam Stovall, chief investment strategist at CFRA. Ahead of that will be critical economic data, such as a reading on consumer prices that will give investors more insight into whether inflation has peaked. The strong rally since June, however, suggests the index will continue to rebound through December, Stovall said.“While we might end up retesting the June low, history says that we will not set a new low,” he said. While fund managers as a whole remain bearish, the ratio of bulls to bears has improved since July, reducing the likelihood of outsized gains in the months ahead, according to Bank of America survey released Aug. 16. The bank’s clients were net sellers of U.S. equities last week for the first time in eight weeks, suggesting that investors are growing more defensive, the bank said. At the same time, the use of leverage by hedge funds – a proxy for their willingness to take risk – has stabilized since June and is near the lowest level since March 2020, according to Goldman Sachs. Investors may rotate into technology and other growth stocks that can take market share despite an economic slowdown, said Tiffany Wade, senior portfolio manager at Columbia Threadneedle Investments, who is overweight mega-cap stocks like Amazon.com Inc and Microsoft Corp. “We expect the pullback will start with some of the riskier names that have run up a lot since June,” she said.
The Japanese pharma major is also filing a plea before the Delhi HC seeking appointment of forensic auditors to analyse transactions involving IHH, Fortis Healthcare and RHT, Singapore, as directed by the HC on October 18.
The development is likely to create legal hurdles and delay the proposed open offer as IHH had recently told FE that it could only go ahead if Sebi agreed with its legal interpretation that the SC’s September 22 order has lifted all such restraints.
IHH managing director and CEO Kelvin Loh told FE on November 9 that the company would like to go ahead with the open offer “as soon as possible” as there has already been a delay of four years. Ravi Rajagopal, chairman of Fortis Healthcare, had added that their legal counsel has advised that the company can go ahead with the open offer as the SC order has disposed of various appeals, including the suo motu contempt. “We have represented to the Sebi and the matter is with them,” Rajagopal had said.
However, legal observers told FE that the matter is not that straightforward and simple as the Delhi HC has to take the final call on the matter of open offer as well as whether a forensic audit has to be done in the share sale which was executed in 2018.
Also Read: IHH to float open offer for Fortis if Sebi concurs with our legal view: MD & CEO
Loh and Rajagopal had said the possibility that the matter may take a different turn when it comes up in Delhi HC cannot be ruled out.
IHH had in July 2018 acquired a 31% stake in Fortis Healthcare for Rs 4,000 crore through the bidding route. It had also earmarked Rs 3,000 crore to make an open offer for an additional 26% to the public shareholders as required under the law.
Daiichi has written to Sebi that the SC in its September 22 order had asked the HC to consider ordering a forensic audit into the dilution of FHL shareholding, repeated violation of undertakings and assurance by former FHL promoters — Malvinder and Shivinder Singh — and the transaction between FHL, IHH and the clandestine transfer of Rs 4,666 crore to RHT Singapore.
Daiichi is “severely prejudiced” with IHH’s clandestine attempt to subvert the status quo order directed by the SC on December 14, 2018, and September 22 with respect to the conduct of forensic audit and the pending proceedings before the HC by purportedly consulting regulatory authorities, including Sebi, on the proposed FHL-IHH transaction. It has reiterated that the FHL-IHH transaction was currently sub-judice before the HC where FHL is also a party, its solicitors, P&A Law Offices, have said in the letter.
“We further state that any such attempt by FHL and/or IHH to proceed with the FHH-IHH transaction would be in direct contravention of the HC and SC orders,” the letter sent by the law firm has stated. Daiichi Sankyo is pursuing the enforcement of Rs 3,500-crore arbitration award against the Singh brothers pronounced by a Singapore tribunal for concealing information when they sold Ranbaxy Laboratories to it for $4.6 billion in 2008. The apex court had in 2018 put on hold the sale of Fortis Healthcare to IHH on a contempt plea filed by the Japanese drugmaker against the Singh brothers.