Reuters: NEW YORK Investors in U.S. stocks are preparing for a possibly tumultuous September as the market prepares for important economic data releases, a Federal Reserve meeting, and concerns over a potential government shutdown in the midst of a typically quiet equity performance month.
According to CFRA, the S&P 500 has performed the poorest of any month in September since 1945, falling an average of 0.7%.
The last few weeks have been turbulent. The S&P 500, which has increased by almost 15% so far this year, has declined by more than 4% from its peak on July 31 as a result of market reaction to China’s economic slowdown and a rise in Treasury yields that threatens to make stocks less appealing.
The market is “coming up on a number of key inflection points at a time when the market is still on edge given the rise in rates,” according to Jack Janasiewicz, portfolio manager and head portfolio strategist at Natixis Investment Manager Solutions.
The month begins on Friday with the release of the U.S. non-farm payrolls report. A significantly worse result might stoke concerns that the Fed’s interest rate hikes are beginning to weaken the economy, while a hotter than anticipated employment estimate for August would probably rekindle inflation concerns, according to Janasiewicz.
The consumer price data that is due on September 13 must tread a same fine line to appease investors. Another potential source of volatility is the September 20 meeting of the Fed’s monetary policy committee: Despite a move in September being considered as less likely, expectations of another rate increase this year were boosted by Fed Chairman Jerome Powell’s address on Friday in Jackson Hole.
If you believe that September will be a little more volatile than usual, it may be time to sell the offence and buy the defence, according to Sandy Villere, a portfolio manager at Villere & Co. who has been investing in healthcare stocks like Pfizer and Abbott Laboratories.
Investors will also be keeping an eye on what happens with the $82 billion in government-held student loans whose payments will start in October. Prior to the holiday shopping season, this can reduce consumer spending.
Meanwhile, if lawmakers cannot come to an agreement by September 30, when funding expires with the end of the current fiscal year, a fourth federal government shutdown in a decade is possible due to a dispute over budget cutbacks between hardline and moderate Republicans in the U.S. House of Representatives.
According to experts at Goldman Sachs, a government shutdown could directly lower U.S. economic growth by 0.15 percentage points for each week it lasts.
Of all, this year’s euphoric stock market has overwhelmingly rewarded investors who have ignored possible risks. Despite the regional bank crisis in February, worries about a debt default in June, and concerns that the Federal Reserve’s most accelerated pace of interest rate increases since the early 1980s may send the economy into a recession and stall corporate earnings growth, the S&P 500 rose.
Some investors think that ongoing economic strength and the excitement generated this week by chipmaker Nvidia’s good earnings report and $25 billion stock repurchase programme could lead to greater gains.
Ned Davis Research’s principal global investment strategist, Tim Hayes, predicts a relief rally in September. According to him, the market’s dip in August is comparable to the 6% decline that occurred between February and March of this year, which relieved “excessive optimism” and set the market up for future advances.