Key Takeaways:
The S&P 500 plummeted over 4% last week, marking its worst start to September since at least 1953.
Concerns about the Federal Reserve’s delayed policy adjustments and recent economic data have rattled markets.
The Nasdaq Composite fell nearly 6% last week, with significant declines in major tech stocks like Nvidia and Broadcom.
September has historically been challenging for stocks, with recent years following this trend.
While recent market turbulence mirrors past patterns, historical rebounds offer some hope for recovery.
The September Effect: September is known for its historical underperformance in the stock market. Over the past four years, the S&P 500 has consistently dropped in September, including a 4.9% decline in 2023, 9.3% in 2022, 4.8% in 2021, and 3.9% in 2020. This year’s early September drop has been the worst in 70 years, based on data from Bespoke Investment Group.
Historically, a poor start to September has often led to further declines. For example, in 1987 and 2008, the S&P 500 continued to fall significantly after a rough first week in September. However, there were instances of recovery, such as in 2001 and 2015, when the index rebounded positively by year-end.
Current Market Concerns:
Economic Data: Recent job reports have been revised lower, and the Labor Department indicated a significant underestimation of job additions. This has contributed to a steepening of the Treasury yield curve, often seen as a recession signal.
Interest Rates: The Federal Reserve is expected to cut rates for the first time in over four years, but such cuts may already be priced into the market. Traders are anticipating a 50 basis-point cut by year-end, which could be the largest cut by any major central bank this year.
Lack of Catalysts: With earnings reports not due until mid-October and a contentious presidential election on the horizon, there are few immediate positive catalysts for the market.
Reasons for Optimism:
Historical Rebounds: Despite September’s rough starts in previous years, markets have often managed to recover. August’s volatile performance, which saw significant declines followed by a rebound, serves as a recent example of potential recovery.
Economic Resilience: The economy has frequently defied expectations in recent years, leading some experts to question the reliability of traditional recession indicators in the current post-Covid context.
Past Performance of Tech Stocks: The recent declines in major tech stocks, such as Nvidia and Broadcom, have been particularly pronounced. However, similar scenarios in the past have sometimes led to recoveries in broader markets.
Outlook: While the stock market’s poor start to September and current economic anxieties may suggest a challenging month ahead, historical patterns provide a glimmer of hope for a rebound. Investors will be watching closely to see if market conditions stabilize and if the Federal Reserve’s actions can support economic growth without exacerbating current concerns. The performance of tech stocks and upcoming earnings reports will also be crucial in shaping market sentiment and potential recovery paths.
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