Fasten your seat belts! Stocks, bonds, and gold will enter a stormy mode in September
September is usually a month when the stock market, bond market, and gold market perform poorly. Investors need to be cautious about the uncertainty of the Fed's interest rate cut expectations. Historical data shows that since 1950, the S&P 500 and Dow Jones have experienced the largest declines in this month. The US bond market has also faced recent volatility, with the market focusing on the impact of US employment reports on monetary policy. Economic experts point out that market volatility in September this year may be greater, especially in an election year, and investors need to be prepared to face potential risks
For traders, September has always been a bad month, and given the lingering issues regarding the Fed's interest rate cut expectations, this September may be even more difficult to endure.
As traders reassess their investment portfolios after the summer break, US stocks, US bonds, and gold typically suffer losses this month. Since 1950, both the S&P 500 Index and the Dow Jones have recorded their largest single-month declines in September. In the past decade, US bonds have fallen in 8 out of 10 Septembers, while gold and silver have declined every September since 2017.
This time, investors may need to be better prepared to weather the storm, as they face uncertainties including a crucial US jobs report, which is seen as key to the future rate and frequency of Fed rate cuts. Meanwhile, US stock trading volumes are nearing record levels, US bonds are on their longest monthly winning streak in three years, all of which are susceptible to data shocks or unexpected impacts from the US elections.
Vishnu Varathan, Head of Economics and Strategy at Mizuho Bank, said, "Autumn is a season of decline, especially with the market pricing in such high expectations for a Fed rate cut, and people chasing after the 'blonde girl', the market will be more impatient than usual."
In August, global stock markets experienced a brief and brutal plunge. Investors are now turning their attention to Friday's job data, which could reveal the health of the world's largest economy and influence the trajectory of the Fed's upcoming monetary easing policy.
The market has already priced in expectations of a significant 100 basis point rate cut by the Fed by the end of this year. If the Fed's stance at the meeting ending on September 18 does not turn out as dovish as expected, the risk of sharp market volatility will increase.
Bob Savage, Head of Market Strategy and Insight at New York Bank, wrote in a report, "September trading has historically been volatile, with risk aversion not uncommon, especially in election years. There is a sense that the upcoming US jobs report will determine the market trend for the remaining time of the year."
This time, non-farm payroll data may have a greater impact on US stocks.
Manish Bhargava, CEO of Singapore Straits Investment Management, said, "The market is currently driven by a few large tech stocks, and if these stocks decline, the market is prone to significant drops. Any surprises could lead to rapid unwinding of leveraged positions."
The first televised debate next week between US Vice President Harris and former President Trump is another unstable factor.
Amy Wu Silverman, Head of Capital Markets Derivatives Strategy at Royal Bank of Canada, wrote in a report, "One risk is a controversial election like in 2000. Additionally, while Fed Chair Powell has largely dispelled any debate about whether they will cut rates in September, the biggest question is 'by how much'." Given the high risks, strategists believe that caution is the key to navigating the market.
Royal Bank of Canada Capital Markets believes that downside hedges have been "quite cheap for some time", while LPL Financial sees opportunities in US communication services, energy, and healthcare sectors.
IG Markets Ltd. analyst Hebe Chen said, "Buckle up and make sure extra protective measures are in place."
New York Bank believes that maintaining the current stock market trajectory requires promoting growth-friendly loose policies.
Morgan Stanley strategist Mislav Matejka stated that even with a Fed rate cut, the stock market rally may stall near record highs.
Matejka is one of the most bearish strategists on the stock market this year. He believes that any policy easing would be a response to slowing economic growth, making it a "reactive" rate cut. Seasonal trends are another obstacle.
Other market strategists, including Michael Hartnett from Bank of America, have recently warned that the Fed's first rate cut could trigger a stock sell-off rather than drive the market higher