Stocks week ahead: September is historically a dismal month for stocks

The Dow Jones and S&P 500 fell sharply in September last year and in 2020, although the broader market rallied in both years. That doesn’t mean equities are doomed to end September in the red, of course. Stocks rallied in each of the three September months preceding the pandemic.

But here’s another potentially ominous sign: it’s a midterm election year. The Dow Jones has fallen in 11 of the last 18 pre-midterm Septembers since 1950, according to data from The Stock Trader’s Almanac.

So don’t rely on past performance to dictate future results. Ultimately, investors should focus on fundamentals rather than calendar dates. Earnings, the economy and the Federal Reserve’s interest rate policy will matter far more to stock performance than this month.

Still, there are reasons to be nervous.

The next Fed meeting on rate hikes is September 21. Several key economic reports are under review that will give investors more clues about the health of the labor market and whether inflationary pressures are easing. Congress will be back in session right after Labor Day as well.

“There is no doubt that there are a number of geopolitical concerns and economic data that could lead to volatility. Investors should be prepared for this,” said Josh Emanuel, chief investment officer of Wilshire.

Traders should watch the Fed and the economy closely, he added, and the good news is that there are signs that the labor market remains healthy and inflation is finally starting to subside.

If this trend persists, Emanuel said, “a soft landing could be a plausible scenario,” meaning the Fed won’t cause a recession by raising rates too aggressively.

The stock market had a miserable first half, which could mean that the recent rebound (July’s strong rally and a flat, albeit choppy August) could continue.

“Historical concerns about September and October are less relevant this year. There are forces at play that are more significant,” said Alex Chaloff, co-head of investment strategy at Bernstein Private Wealth Management. “There are a number of potential catalysts for a fall rally.”

Chaloff said if the slowdown in inflation continues, “the market would significantly encourage it” and the Fed may be more likely to raise interest rates next month by just half a percentage point. instead of three quarter points. That could be “key to building momentum for a rally,” Chaloff added.

Chaloff also thinks a soft landing is possible for the economy, or in the worst case, a “mild recession”. Investors needn’t worry about a sharp economic downturn because “the strength in consumer and business spending will be more than enough to get us through,” he said.

So, as long as the economy continues to improve and inflation fears spread further in the rearview mirror, the market could well avoid a big slump in September.

Or an October crash. Don’t get us started on 1929. Or 1987. Or 2008…

All eyes on the jobs report

Concerns about a looming recession eased after the stronger-than-expected July jobs report. The government reported that 528,000 jobs were added, far more than expected.

August employment numbers are due Friday. Economists expect a slowdown in hiring, but nothing that is likely to set off stronger recessionary alarm bells.

Economists forecast an increase of 285,000 jobs in the August payroll, according to Reuters, and that the unemployment rate will remain stable at 3.5%. If these estimates are respected, the Fed (and the markets!) will probably be satisfied.

Second-quarter GDP fell less than previously thought, but economy continues to contract

“July’s jobs report was so strong that it’s hard to imagine the Fed will worry about the August numbers. The labor market is a testament to the underlying strength of the economy,” he said. said Jake Remley, senior portfolio manager at Income Research + Management.

Investors will also be keeping a close eye on wage growth figures in the jobs report. Any sign of slowing wages could be seen favorably by investors as further evidence that inflationary pressures are easing.

Economists forecast a slight increase from July, with wages expected to rise 5.3% over the previous 12 months… up slightly from June’s 5.2% growth rate.

A slight acceleration in wage growth is unlikely to trigger alarm bells. But neither the Fed nor investors will want to see wages skyrocket. This might be good news for consumers in the short term, but it would not be welcome in the long term.

As Fed Chairman Jerome Powell said in his Friday speech in Jackson Hole, “a failure to restore price stability would mean far greater pain” for the economy.


Monday: UK London Stock Exchange closed for a public holiday; Earnings of Pinduo-duo (PDD), BYD (BYDDF)
Tuesday: US consumer confidence; AMERICAN SHOCKS; Earnings of Baidu (BIDU), best buy (BBY), resume (HPQ), Hewlett Packard Enterprise (HPE), Soft (CHWY), HPV (HPV) and CrowdStrike (CRWD)
Wednesday: ADP private sector employment in the United States; China official PMI; India’s GDP; Income from Evergrande, Meitu, Brown Forman (BFB) and Designer brands (DBI)
Thursday: weekly jobless claims in the United States; ISM manufacturing in the United States; China Caixin PMI; Earnings of Hormel (HRL), Campbell’s Soup (pcb), Bookmark Jewelers (GIS), Ciena (CIEN), Weibo (BM), Ollie’s Bargain Outlet (OLI), Broadcom (AVGO) and lululemon (LULU)

Friday: US employment report


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