Although past performance is no guarantee of future results, investors should prepare for continued market volatility this month. At the same time, a close examination of economic indicators and market trends suggests that this September may generate some strategic investment opportunities.
It’s common knowledge that September has historically been a challenging month for stocks., regardless of the time frame. Since 1928, the S&P 500 has closed 52 times in September, more than any other month, according to Yardeni Research. Looking at monthly returns over the past 35 years, stocks performed the worst during September, falling 0.34% and 2.89% on average, respectively.
Although past performance is no guarantee of future results, investors should prepare for continued market volatility this month. At the same time, a close examination of economic indicators and market trends suggests that this September may generate some strategic investment opportunities.
The narrative of recession seems to be disappearing
While optimism has cautiously returned to Wall Street, new data suggests that fears of an impending recession are diminishing among some S&P 500 companies.
FactSet reported that fewer S&P 500 companies mentioned the recession during their second-quarter earnings calls compared to previous quarters. Only 62 companies quoted the term, which represents a decrease of 45% compared to the March quarter and the lowest figure since the last quarter of 2021.
A recent study of the economic impact of higher rates offers context that helps explain the new optimism of businesses. According to findings by the Federal Reserve Bank of Chicago, much of the Federal Reserve’s rate hike policy has already been felt in the broader economy. The labor market will feel a slow impact, and more than half of the total impact on working hours has not yet occurred. However, the report’s authors predict that existing policy measures should be enough to bring inflation closer to the Federal Reserve’s 2% target by mid-2024, all without triggering a recession.
This could mean that the period of rate hikes is coming to an end, which is likely to be a positive development for equities.
In fact, the betting markets seem to believe that the Federal Reserve is ready to stop. The probability that the Federal Open Market Committee (FOMC) will keep rates at current levels when its members meet later this month is 95%, based on 30 days of federal funds futures price data. There is an equally strong possibility that rates will be lower within a year.
Core inflation is reportedly cooling, and this could give the Federal Reserve some room to maneuver. Chairman Jerome Powell’s speech at the Jackson Hole Symposium last month was largely welcomed by markets, indicating that the central bank’s policy will continue to rely on data with the intention of tightening only when necessary.
Indicators of stability in manufacturing and service
The health of the US manufacturing and service sectors, while remaining at historically low levels, is also moving in the right direction, suggesting that now may be a good time to buy.
The Institute for Supply Management (ISM) reported that the Services Purchasing Managers’ Index (PMI) rose for the third consecutive month in August. A PMI above 50.0 indicates expansion, and the index rose from 52.7 in July to 54.5 in August.
The service and manufacturing industries recovered due to lower inflation. US GLOBAL INVESTORS
In the manufacturing sector, conditions remained below the 50.0 mark for the 10th consecutive month in August, despite showing slight signs of improvement. The PMI stood at 47.6, a slight increase from 46.4 in July and the highest reading since February, indicating a slower pace of decline.
Overall, both sectors showed signs of stability and adjustment as prices gradually came under control. For investors looking at long-term growth prospects, these subtle but positive changes may mark a favorable entry point.
Investment strategies for September… and beyond
September has a reputation for being a tough month for stocks, but the current economic climate suggests this year could be different. Easing concerns about a recession, signs of a possible shift in Federal Reserve policy, and positive industry trends point to the possibility of strategic investment opportunities.
It is important to approach this with a balanced perspective. Diversification remains key and investors may consider a mix of asset classes including equities, fixed income, commodities and, of course, gold to protect against the current uncertainty.
As always, investors should remain cautious and alert to inflationary pressures and geopolitical uncertainty that can increase volatility in markets. A well-thought-out, data-driven investment strategy can be especially rewarding in today’s environment, offering a way to manage risk and take advantage of new opportunities.
