• Investors are preparing for what is historically the most challenging month for the stock market
• The Fed rate-cutting cycle is expected to begin in September, possibly lifting equities

September (not) to remember?

September has historically stood out as a challenging month for the stock market, marked by an average return of -0.8%, the only month showing a negative average since 1926.

This contrasts sharply with other months that typically yield positive returns.

Additionally, September yields only a 50% chance of a positive stock performance.

This even split between positive and negative returns combined with the historical negative return suggests that September usually spells trouble for the market bulls as investors approach this month with greater caution.

Source: Blackrock

Fed Officials favor September cut

Fed offered the clearest signal yet that rate cuts are imminent. 

Speaking at last month’s annual economic symposium in Jackson Hole, Fed Chair Jerome Powell stated, “The time has come for policy to adjust.”

Powell further noted, “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data.”

The current data suggests that the economy is doing well (the labor market is still adding jobs) while GDP and earnings growth remain robust.

This supports the view that a soft landing is the most likely outcome.

Source: Edward Jones

Historically, the start of a rate-cutting cycle is positive for stocks when the economy is not in a recession. Lower interest rates can stimulate economic growth, boost corporate earnings, and encourage higher stock prices.

According to CME Group data, investors are mostly pricing in a 25-basis point cut at each of the upcoming Fed meetings in September and November, with expectations of a larger reduction in December.

Attention is now turning to the upcoming Friday Jobs Report, which will serve as the final major gauge of the labor market’s strength ahead of the Federal Reserve’s mid-September meeting, at which the US central bank is likely to start its cutting cycle.

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