September has long been recognized as a challenging month for traders, and 2024 could prove even more treacherous due to uncertainties surrounding the Federal Reserve’s anticipated interest-rate cuts.
Historically, September has been rough for various asset classes. The S&P 500 Index and Dow Jones Industrial Average have consistently recorded their steepest percentage declines since 1950 during this month. Similarly, bonds have seen declines in eight out of the last ten Septembers, while gold has consistently fallen every year since 2017.
This year, investors should brace for potentially volatile markets, driven by uncertainties such as the pivotal US jobs report, which will likely play a key role in determining the extent and frequency of the Fed’s future rate cuts. With stocks near record highs and Treasuries enjoying their longest streak of monthly gains in three years, both asset classes are particularly susceptible to data surprises or unexpected developments in the tight US presidential race.
“Autumn often brings market falls, especially when investors have already priced in substantial expectations for Fed cuts and are pursuing a ‘Goldilocks’ scenario,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “This year, the market is likely to be even more sensitive than usual.”
Following a tumultuous August that saw a brief but severe global stock market selloff, all eyes are now on Friday’s employment data. This report could provide critical insights into the health of the US economy and significantly influence the Fed’s upcoming decisions on monetary easing.
With markets currently pricing in four quarter-point rate cuts by year-end, any deviation from these expectations could trigger significant market volatility, especially if the Fed’s tone is less dovish than anticipated at its September 18 meeting.
“September’s market behavior is often unpredictable, especially in election years, where risk aversion tends to be more pronounced,” noted Bob Savage, head of market strategy and insights at BNY. “The upcoming US jobs report could set the tone for the remainder of the year, making it a key event to watch.”
Expanded Analysis:
The opportunity for traders lies in the potential for significant market movements driven by key economic data releases and Federal Reserve actions. Those who anticipate the direction of the Fed’s policies correctly could position themselves to profit from market fluctuations. Conversely, the risk of unexpected data or political developments could lead to sharp corrections, making it crucial for investors to stay nimble and well-informed.
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