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US stock market investors eyeing these 2 major events in September – The Financial Express

The Financial Express

Since 1950, the S&P 500 index has witnessed an average decline of 0.5% in September while the Dow Jones Industrial Average (DJIA) or Dow 30 has experienced a decline of 0.8% on average. September has never been kind to the stock market investors and is considered to be the worst of all the months if one goes by what history shows. “September is traditionally the worst month of the year for stock markets – but this year could be different,” says Nigel Green, CEO, deVere Group, one of the world’s largest independent financial advisory, asset management, and fintech organizations.
“February and September are both historically bad months for stock markets, but September is usually worse. There are different suggestions as to why this is the case. For instance, some insist it is because investors are selling-off to secure some capital for the year; some say it’s down to funds paying out, encouraging selling for tax reasons,” adds Green.
On top of it, there are three major developments in September that Wall Street investors, analysts, and strategists will be looking at very closely.
One of those data points is the August Jobs figures that are already out. A close look at the US labor market data showed that non-farm payrolls rose by 315000 in August, higher than the estimate of 298000, but lower than the previous month’s 526000. A strong employment sector means a more resilient economic condition thus propelling Fed to tackle inflation more aggressively. Analysts also dig into the jobs report for signs of what is happening with wage growth.
The remaining two major events in September include the US inflation numbers that come on September 13, 2022 and the Fed’s FOMC meeting on September 20-21.
Along with the jobs data for August released earlier this month, it is the US CPI numbers that will ultimately help Fed to go for a 50bps or 75 bps rate hike. The US inflation rate in July was 8.5% while in June it was 9.1 percent have seen a jump from 8.6% witnessed in May 2022. US inflation for August 200 may set the tone for the Fed rate hikes in the future.
A 75 bps rate hike, if it goes through, will be the third consecutive rate hike and will show the determination of the Fed to tame inflation at all costs.
Most analysts expect the Fed to raise rates by 75bps in September to bring inflation under control. Vanguard expects the Fed to increase its federal funds’ rate target to a range of 3.25% to 3.75% by the end of the year, from a target of 0% to 0.25% at the start of the year and a terminal rate of at least 4% in 2023 is expected to get inflation under control.
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However, the deVere CEO believes this year might be different. “Stock markets had an unusually rough first half of the year and much of the major disruption has already taken place and future jolts priced in. In addition, we expect higher than usual institutional investor activity – supporting prices – due to the current lower valuations. They’re thinking ahead to what is going to happen, not what has already happened.”
But, rate hikes to fight inflation comes at a price. The cost that the economy is going to bear has already been taken up by Fed Chair Powell at his Jackson Hole Economic Policy Symposium 2022 speech. Sending a stern warning, Powell had said – while slower GDP, higher interest rates, and a softer labor market will help to reduce inflation, they will also hurt certain people and companies. These are the regrettable consequences of lowering inflation. However, failing to bring back price stability will cause even more suffering.
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Whether history will repeat itself and stocks will end lower by September end remains to be seen. The possibility of a Fed Pivot that was brushed aside after Jackson Hole may emerge as more data flows in the months ahead. Stock market investors expect Fed’s action to give them some direction before the next quarter’s results flow in and as macroeconomic conditions develop in 2023.
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