Unlocking Potential: Why September’s Market Volatility is Just a Blip on the Radar
As we wave goodbye to August, it’s easy to feel relief that the month is behind us. But hold on tight, because September can also be a rollercoaster ride for investors.
Historically, September has been the weakest month for the stock market. The Dow, S&P 500, NASDAQ, and Russell 2000 have all seen declines on average during this month. This trend has earned September nicknames like the “September Swoon” or the “September Effect.”
This year, the September Effect has made its presence known. The Dow is down more than 2%, the S&P 500 has slipped about 4%, while the NASDAQ and Russell 2000 have both seen declines of over 5%.
But fear not, dear investors. In this edition of Market 360, I will delve into the reasons behind this volatility and explain why I believe this weakness is only temporary. I will also share why investors should keep their optimism alive for the month ahead.
The Temporary Seasonal Shenanigans
There are a few factors contributing to the current market turbulence. Firstly, small business owners, freelancers, and others who pay estimated taxes quarterly may need to sell shares to cover their tax bills due on September 16. Once this deadline passes, this pressure on the market should ease.
Additionally, many traders are still on summer vacation, leading to lighter trading volume and potentially exaggerated market movements. Once the full force of traders returns to work, stability should return.
Earnings Season Is Over
Although the second-quarter earnings season was strong, some companies, like NVIDIA Corporation, faced profit-taking after slightly missing Wall Street’s high expectations. NVIDIA’s stock decline has contributed to the overall weakness in the S&P 500 and NASDAQ.
Two Catalysts to Propel Stocks Higher
Looking ahead, there are two key catalysts that could drive stocks higher in the latter half of September. The Federal Reserve is expected to cut interest rates in response to weakening economic data, which should breathe new life into the markets. Additionally, quarter-end window dressing, where fund managers adjust their portfolios, could fuel buying in fundamentally superior stocks.
In conclusion, while September may be a challenging month for the market, there are reasons to remain optimistic. By understanding the factors at play and staying informed about potential catalysts, investors can navigate this period of volatility and seize opportunities for growth in their portfolios.