Historically stormy month of September may test US stock rally
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[August 26, 2023] By
David Randall
NEW YORK (Reuters) - U.S. stock investors are bracing for a potentially
volatile September as the market faces key economic data reports, a
Federal Reserve meeting and worries over a possible government shutdown
during a month of historically muted equity performance.
In Septembers since 1945, the S&P 500 has declined an average of 0.7%,
the worst performance of any month, according to CFRA.
Recent weeks have been volatile. The S&P 500, which is up nearly 15%
this year, has retreated more than 4% from its July 31 high as investors
reacted to weakness in China's economy and a surge in Treasury yields
that threatens to make equities less attractive.
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," said Jack
Janasiewicz, portfolio manager and lead portfolio strategist at Natixis
Investment Manager Solutions.
The U.S. non-farm payrolls report kicks off the month next Friday. A
hotter than expected employment reading for August would likely revive
inflation concerns, while a much weaker number could fuel worries that
the Fed’s interest rate hikes are starting to crack the economy,
Janasiewicz said.
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Consumer price data due on Sep. 13 needs to walk a similar tightrope to
satisfy investors. The Fed’s monetary policy meeting on Sep. 20 stands
as another potential source of volatility: Friday’s speech from Fed
Chairman Jerome Powell in Jackson Hole fueled expectations of another
rate increase this year, though a move in September was seen as less
likely.
"It's looking like a time to sell the offense and buy the defense if you
think that September is going to be a little more volatile than normal,"
said Sandy Villere, a portfolio manager at Villere & Co, who has been
moving into healthcare stocks such as Pfizer and Abbott Laboratories.
Investors will also watch what happens with roughly $82 billion worth of
student loans held by the government whose payments will begin in
October. This could sap consumer spending ahead of the holiday shopping
season.
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The Wall Street entrance to the New York
Stock Exchange (NYSE) is seen in New York City, U.S., November 15,
2022. REUTERS/Brendan McDermid/File Photo
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Meanwhile, a feud over spending cuts between hardline and centrist
Republicans in the U.S. House of Representatives raises the risk
that of a fourth federal government shutdown in a decade if
lawmakers cannot reach a deal by Sep. 30, when funding runs out with
the end of the current fiscal year.
A government shutdown stands to directly reduce U.S. economic growth
by around 0.15 percentage points for each week it lasts, analysts at
Goldman Sachs wrote this week.
Of course, bullish stock investors have largely been rewarded for
looking past potential pitfalls this year. The S&P 500 rallied
despite the regional bank crisis in Feb., concerns over a debt
default in June, and fear that the Federal Reserve's most aggressive
pace of interest rates hikes since the early 1980s will push the
economy into a recession and derail corporate earnings growth.
Some investors believe further gains could come from a resilient
economy and continued excitement over the business potential of
artificial intelligence, fanned this week by chip maker Nvidia’s
strong earnings report and $25 billion stock buyback announcement.
Tim Hayes, chief global investment strategist at Ned Davis Research,
expects a relief rally in September. The August decline looks
similar to the 6% fall between Feb and March of this year which
relieved "excessive optimism" and set the market on course for more
gains, he said.
"The correction started on the first day of the month, and now it
has corrected the conditions that made it vulnerable," Hayes said.
(Reporting by David Randall; Additional reporting by Lewis Krauskopf;
Editing by Ira Iosebashvili and David Gregorio)
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