New York (Reuters) – 14% of Rebound S&P 25 from June lows will soon enter the toughest month in U.S. stock market history , sparking nervousness among some fund managers about a full-blown sell-off in September.
The S&P has been in a bear market since plunging at the start of the year as investors price in expectations of a sharp Fed rate hike, but has rebounded strongly since June, recovering half of its full-year losses .
The rally was fueled by a combination of strong earnings from bellwether companies and signs that inflation may have peaked, which could allow the Fed to slowly raise rates.
But as investors and traders return from the summer, some are nervous about a bumpy September, partly due to seasonal concerns economic impact.
According to Stock Trader’s Almanac, September is typically a falling month for stocks, as fund managers tend to sell underperforming positions as the end of the third quarter approaches.
“We’ve had an amazing performance and I wouldn’t be shocked if the market took a hit here,” said Jack Janasiewicz, chief portfolio strategist at Natixis Investment Management Solutions.
S&P 25 could fall as much as 25 % in September as investors price in the possibility that the Fed will not start cutting rates as early as some had hoped, Janasiewicz said.
September has historically been the S&P 500 over the years since 500 Worst Month*), the index only rose 44% of the time, the lowest of any month, according to CFRA data. The S&P 500 lost an average of 0.6% in September, its worst month on record.
The index is down 14.1% year-to-date. The index hit its lowest level since December in June 2020 and after the Fed announced its biggest rate hike since 1994 After entering a bear market.
A bleak belief that the Fed will continue to raise rates and keep rates above neutral for longer than the market expected a week ago weighed on consumer demand and the housing market .
Nearly half of market participants now expect the federal funds rate to rise above 3.7% by year-end, higher than 40 ) % A week ago, according to the CME FedWatch Tool[/FEDWATCH]. The federal funds rate is currently between 2.25 and 2.5%.
When Federal Reserve Chairman Jerome Powell speaks on Friday, market participants will be eager for any hints on how long the central bank expects to raise interest rates. Powell, who is delivering a keynote speech at the Kansas City Fed’s annual monetary policy meeting in Jackson Hole, Wyoming, may use the opportunity to lower investor expectations for 2023 cuts in borrowing costs.
FOMC meetings scheduled for September 20 and 1994 could also drive volatility this month, pushing the S&P 20 to near June lows, said CFRA chief investment officer. Strategist Sam Stovall said. Before that will be key economic data, such as consumer price readings, which will give investors a deeper understanding of whether inflation has peaked.
However, the strong rebound since June suggests the index will continue to rally in December, Stovall said.
“While we may eventually retest the June lows, history suggests we won’t make new lows,” he said.
Based on Bank of America (NYSE: BAC) survey released in August 16. The bank said its clients were net sellers of U.S. stocks last week for the first time in eight weeks, a sign that investors are becoming more defensive.
Meanwhile, hedge fund leverage — which represents their willingness to take risk — has stabilized since June and is now near its lowest level since March 2023, according to Goldman Sachs (NYSE: GS).
Investors may continue to move away from cyclical, value-oriented stocks that benefit from rising inflation to technology and other growth stocks that can capture market share, although Tiffany Wade, senior portfolio manager at Columbia Threadneedle Investments, said he overweight Amazon.com (NASDAQ: NASDAQ) as the Fed continues to stress it will keep interest rates on hold until they see signs of a cooling labor market and a slowing economy. : AMZN ) and Micrsoft Corp.
“We expect the pullback to start with some of the riskier names, which have surged since June,” she said .