To say September was a bad month for stocks would be an understatement. Indeed, according to Wall Street veteran Ed Yardeni, “it’s generally seen as a bad month for stocks,” and for good reason. Since 1945, the S&P 500 has lost an average of 0.73% in September. That compares with a 0.7 percent average monthly gain for all months in the index over the same period.
this guardian’Economics editor Larry Elliott goes further Earlier this month, readers were reminded that the arrival of fall coincided with financial disasters like the 2008 collapse of Lehman Brothers, the end of the gold standard during the Great Depression, and even the mother of all financial crashes: collapse The explosion of the South Sea Bubble in 1720.
Still, if you asked Yardeni Research’s president and chief investment strategist how to invest in the market in September, he wouldn’t advise you to run away. Historically, September can be a poor month for market returns, but Yardeni insists it’s also a good time to look for long-term bargains.
“September is a good month for apple picking,” Yardeni explained in a note to clients on Tuesday. “As it turns out, the sell-off is often a good opportunity to pick stocks that are on the downside during the year-end Santa rally.”
Throughout 2023, Yardeni said the economy was unlikely to face a severe recession as a result of Fed rate hikes, despite investment banks and economists unanimously forecasting a recession. Interest-rate-sensitive sectors of the economy, such as real estate, are already shrinking, but other sectors that are not affected by interest rates are continuing to grow, helping to prevent an overall recession, Yardeni said. In addition, the unprecedented $75 trillion net worth of baby boomers is helping consumer spending remain strong even as the labor market cools under pressure from rising interest rates.
Despite the stock market’s poor performance in September, Yardeni is clearly not bearish on the market’s future. Still, the seasoned market watcher decided to break down seven ways the stock market could go wrong this month in order to keep investors informed about the risks. Here’s what he had to say.
1. Bond yields rise
First, Yardeni worries that rising bond yields could make stocks less attractive to investors, leading to lower stock prices. When the yield on the 10-year U.S. Treasury bond approaches 5%, many investors get enticed by its steady, virtually risk-free returns and turn away from stocks. With oil prices rising, the Fed may be forced to raise rates again, which would take the 10-year rate to 5% from the current 4.29%.
2. High oil prices
Oil prices have risen 30 percent from lows of around $67 a barrel in March to over $87 on Wednesday. Higher oil prices could lead to higher inflation, forcing the Federal Reserve to keep raising rates to ensure stable prices for consumers. After more than 17 months of raising interest rates, raising borrowing costs across the country, many experts fear the economy can only take so much.
Yardeni also noted that earlier this week Saudi Arabia expand It has voluntarily cut crude output by 1 million bpd by the end of the year, which could reduce oil supply.The Chinese government proposed several measure Stimulating its struggling economy, including easing restrictions on home purchases and lowering interest rates, could boost oil demand. “These developments have heightened inflation concerns,” he warned.
3. Inflation data beat expectations
Consumer price index (CPI) data for August will be released next Wednesday, which could pose a problem for stocks if the data does not show subdued inflationary pressures. Investors hoped that the Federal Reserve’s campaign of rate hikes to slow the economy would be coming to an end, which may surprise investors.
“Concerns over next Wednesday’s CPI could intensify over the next few days,” Yardeni wrote, explaining that the inflation data could be higher or lower than expected, depending on which source you look at.
“Truflation was up 2.5% year-over-year, which was really a very happy surprise,” he said. “The CPI tracker from the Cleveland Fed showed headline and core rates at 3.8% and 4.5%, respectively, which would be an exciting surprise.” Unpleasant surprise.”
4. Federal Open Market Committee meeting
The FOMC is scheduled to meet on September 19-20 to decide on U.S. interest rate policy, and if its members decide to raise rates again, it will undoubtedly be bad for the stock market. But even if they don’t, Fed Chairman Jerome Powell’s hawkish tone could send stocks lower as investors begin to project “longer-term higher” interest rates, which typically drag on economic growth.
“Even FOMC participants don’t know what decisions they’re going to make at the next meeting,” Yardeni explained, noting that the indecision has unnerved investors.
5. The UAW strike
Ford, General Motors and Stellantis are facing worker strikes after the UAW demanded new contracts that included pay raises, a 32-hour workweek and other costly moves, but were reprimanded by the companies.as wealth It was previously reported that the UAW strike has put the Detroit Big Three in trouble. Either they allow the strike to continue or accept billions of dollars in incremental cost increases that will force them to raise car prices, which could dampen demand.
Yardeni backed the report, saying, “The UAW could go on strike against all three Detroit automakers by the end of the month. That could depress the economy (depending on how long it lasts) and drive up auto prices.” .”
6. The federal government shutdown
Political gridlock in Washington has led to repeated futile budget deficit negotiations over the past few years. Just last year, lawmakers narrowly avoided a government shutdown amid disagreements over the size and scope of federal spending. In the end, they agreed to a $1.7 trillion spending bill that would keep the government in place until the end of the month, but that means another showdown is coming.
“Republican hardliners are playing a game of chicken with Republican moderates and Democrats on the federal budget. The result may not be a compromise but a government shutdown, possibly by the end of this month, but more likely in October,” Yardeni wrote.
7. China’s economic downturn
Finally, as wealth It follows reports that China is grappling with a range of economic problems, from a housing crisis to skyrocketing youth unemployment, that could slow global growth. “The government is trying to stimulate the economy. If these efforts fail, oil prices could fall again, and China will become a major source of global deflation,” Yardeni wrote. While many economies around the world are currently battling inflation, deflation is an equally deadly economic disease, or some believe even deadlier. After all, a deflationary economy is usually a contracting economy, which means rising unemployment.
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