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Is this the beginning of the end of the bull run?

Several equity indexes, globally, closed out September with their worst monthly losses since the early days of the pandemic. The S&P 500 was 4.8% down, its first monthly drop since January and the biggest since March 2020. Locally, the All-Share Index plunged 3.14% led by resources which dived 9.55%.


The question we are being asked frequently by our clients is whether the September sell-off was just a blip or the beginning of a long and protracted market correction. Only time can answer that question precisely, but several sentiment gauges are showing that investors are increasingly becoming bearish.  For the first time since the peak of the pandemic, the 27four Investment Managers Thematic Indicator which measures sentiment on the JSE, is detecting risk-off murmurs in the market. Indeed, the reading does not portend a strong bearish sentiment, but it signals that investors are on the edge; somewhat understandable given expectations of policy normalisation in developed markets, the global energy crisis and fear of stagflation due to persistent supply-chain bottlenecks.


27four Investment Managers Thematic Indicator

Source: 27four Investment Managers

How is the 27four Investment Managers Thematic Index constructed?

It is constructed by calculating the slow, medium, and fast-moving averages on the South African Volatility Index (SAVI), a fear gauge for the South African market. The slow-moving average looks at a period of 11 months while the medium and fast-moving averages look at periods of 5 months and 3 months respectively. If the fast-moving average is above the slow-moving average and the medium moving average, our model signifies risk-off which is to say that investors are getting risk-averse. The reversal of this indicates risk-on.

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