March 24, 2023

This Dow and S&P 500 It fell sharply last September and 2020, although the broader market has rallied in both years. Of course, that doesn’t mean the stock market is destined to end in losses this September. The stock market had risen in each of the three Septembers prior to the pandemic.

But here’s another potentially ominous sign: It’s a midterm election year. According to The Stock Trader’s Almanac, the Dow has fallen in 11 of the past 18 interim first nine months since 1950.

So don’t count on past performance to determine future results. At the end of the day, investors should focus on fundamentals, not dates on the calendar. Earnings, the economy and Fed rate policy have a much bigger impact on stock performance than month.

Still, there is reason to be nervous.

The Fed’s next meeting on rate hikes will be on September 21. Several key economic reports are coming, which will give investors more clues about the health of the labor market and whether inflation pressures are ebbing. Congress will also reconvene after Labor Day.

Fed Chair Jerome Powell warns of 'some pain' in fighting inflation

“There are undoubtedly many geopolitical concerns and economic data that could lead to volatility. Investors should be prepared for that,” said Josh Emanuel, chief investment officer at Wilshire.

He added that traders should keep an eye on the Fed and the economy, and the good news is that there are signs that the job market remains healthy and that inflation is finally starting to cool.

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

Equities have had a dismal first half of the year, which could mean the recent rally (a sharp July rally and a flat, albeit choppy August) could continue.

“The historical concerns of September and October of this year are less relevant. There are more important forces at work,” said Alex Chaloff, co-head of investment strategy at Bernstein Private Wealth Management. “There are a number of potential catalysts for a downside rally.”

If inflation continues to slow, “the market will cheer a lot” and the Fed is more likely to raise interest rates by half a percentage point next month than by three-quarters, Charloff said. Charloff added that this could be “critical to building rebound momentum.”

Charloff also believes there could be a soft landing for the economy, or in a worst-case scenario, a “mild recession.” Investors don’t have to worry too much about a sharp economic downturn, because “the strength of consumer and business spending is enough to get us through this,” he said.

So as long as the economy continues to grow and inflation concerns move further into the rearview mirror, the market may avoid the Great Recession in September.

Or the October crash. Don’t let us start in 1929. or 1987. or 2008…

All eyes on the jobs report

Fears of an impending recession receded after a stronger-than-expected jobs report in July. The government reported that 528,000 jobs were created, far exceeding expectations.

Employment data for August will be released on Friday. Economists are expecting a slowdown in hiring, but nothing that could lead to a louder recession alarm.

Economists expect payrolls to rise by 285,000 in August and the unemployment rate to remain at 3.5%, according to Reuters. If these estimates are met, the Fed (and the market!) may be happy.

GDP fell less than previously expected in the second quarter, but the economy is still shrinking

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

Investors will also pay close attention to wage growth figures in the jobs report. Any sign of a slowdown in wages could be seen by investors as more evidence that inflationary pressures are cooling.

Economists forecast a modest increase from July, with wages expected to rise 5.3% over the past 12 months…slightly higher than June’s 5.2% increase.

A small uptick in wage growth may not be a wake-up call. But neither the Fed nor investors want to see wages soar. This might be good news for consumers in the short term, but it won’t be welcome in the long run.

As Federal Reserve Chairman Jerome Powell said in Jackson Hole on Friday, “failure to restore price stability will mean greater economic pain.”


on Monday: London Stock Exchange closed for bank holiday; gains from Pinduoduo (PDD), BYD (BYD)
Tuesday: U.S. consumer confidence; U.S. shakes; gains from Baidu (Baidu), Best Buy (BBY), life value (hyperbaric), Hewlett Packard Enterprise (HPE), chewy (CHWY), polyvinyl alcohol (polyvinyl alcohol) and mass strike (CRWD)
Wednesday: US ADP Private Sector Employment; China Official Purchasing Managers Index; India GDP; Evergrande, Meitu, Brown-Foreman (BFB) and designer brand (DBI)
Thursday: US weekly jobless claims; US ISM manufacturing; China Caixin PMI; gains from Hormel (Human Resources Lab), Campbell Soup (extracorporeal circulation), Seal Jeweler (SIG), Chener (Sean), Weibo (World Bank), Ollie’s Outlet (Ollie), Broadcom (AVGO) and Lululemon (Lulu)

Friday: US jobs report

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