Wall Street faces tough months ahead of the US elections, starting with September, which is considered “the weakest month seasonally (according to historical data) with an average decline of 1.2 percent during it,” according to what Bank of America technical strategist Stephen Suttmeyer indicated in statements reported by a report by the American ne
twork CNBC, which Sky News Arabia Economy has reviewed.
Moreover, investors will have to deal with the Federal Reserve’s upcoming two-day monetary policy meeting on September 17-18.
The Federal Reserve is widely expected to cut interest rates. The question is how much lower the Fed will cut rates.
“There will be significant headline risks over the next few weeks,” the report quoted Guy Woods, chief global strategist at Freedom Capital Markets, as saying. “Now that we’re through earnings season, these headlines will be under more scrutiny than ever.”
Until then, investors will have to wade through a busy economic calendar — with the U.S. jobs report due this week and inflation data the following week — for more clues about what to expect from the Fed going forward.
Interest Rate Key
The path of monetary easing is likely to remain strongly present in investors’ minds throughout this month’s trading, which adds importance to the economic reports that will be issued between now and the Federal Reserve meeting.
- Non-farm payrolls data for August is due out on September 6.
- While the consumer and producer price indices are scheduled to be released on the 11th and 12th of the same month.
- Any sign from the labor market or inflation data that investors will have to reconsider their expectations for rate cuts for the rest of the year could hurt stocks.
“I think it’s a bit of a stretch to expect the Fed to cut rates by 100 basis points in four months,” Sam Stovall of the Financial Markets Research Center said in the report. “The Fed has been saying that they don’t want to reignite inflation, they want to make sure that the fire is extinguished before we leave the camp. So I think the Fed will cut rates in September, and then we’ll watch the data to make that decision.”
“We may rule out November again if data continues to come in stronger than expected. It’s still a volatile situation, because the Fed remains data-dependent,” he added.
Positive trend for stocks
Contrary to the historical data for September, financial market expert and managing director of IDT Consulting and Technology Systems, Mohamed Saeed, expected that Wall Street would head towards a positive path in the coming period, especially with the approach of the US elections. He explained, in his interview with the Sky News Arabia Economy website, that the market has maintained its upward trend for a long time, which supports the continuation of this trend according to technical analysis, as markets that move in a certain direction tend to maintain it.
But on the other hand, he warned that the current market momentum has been prolonged, which could put obstacles in the way of the expected positive path (indicating a possible volatile performance), stressing at the same time that geopolitical tensions, despite the relatively calm situation on the Russian-Ukrainian level, could pose future threats.
He stressed that these tensions may affect the market’s performance from time to time, but despite these obstacles, the greatest expectation remains that the market will maintain its positive momentum. He added: “Financial markets are characterized by irrationality, and despite all the positives and obstacles, this element remains an integral part of the nature of the markets.”
He also spoke about the link between market performance and the Fed’s decision as a major determinant of future trends, stressing that the Fed had adopted a tight monetary policy for two and a half years to confront inflation that reached record levels after the war in Ukraine, the highest in forty years. He pointed out that the Fed Chairman expressed his satisfaction at the Jackson Hole symposium with achieving stability in inflation rates, noting that the main challenges are now concentrated in the financial market and the jobs report.
Accordingly, the Fed is expected to cut interest rates in its September meeting and subsequent meetings, and this approach may extend for the next two years, which will enhance the expansionary policy and support the positive path of the market, according to Saeed, who pointed out that corporate results are still in the positive zone, but it is difficult to predict what will happen in the future, and these are also factors that directly affect Wall Street.
Big challenges
Cedra Markets’ Head of Global Markets, Joe Yarak, expects Wall Street to face major challenges in the coming period, especially with the US elections approaching. Speaking to Sky News Arabia Economy, he explained that September is historically one of the worst months of the year for stocks, with the usual large declines.
This is due to several reasons, most notably the approaching announcement of the Federal Open Market Committee’s decision on interest rates, which is a decision that is highly anticipated this year in particular (and comes after US Federal Reserve Chairman Jerome Powell indicated, during the Jackson Hole symposium, that it is time to adjust policy).
He added that expectations indicate that the Federal Reserve will continue to cut interest rates, but these expectations have become closely linked to the US jobs report due next Friday, adding: Experts expect a 25 basis point cut. He recalled that the recent jobs report and fears of a violent sell-off have returned markets to a state of anxiety.
Yarak pointed out that some recent US economic indicators, such as the decline in the unemployment rate and the improvement of some economic figures, have given the economy a positive boost. However, he explained that negative figures in the labor market will be the main driver of markets in the coming period.
- The upcoming jobs report is expected to be a market mover after disappointingly weak payrolls figures in July raised concerns about slowing economic growth, contributing to the August 5 “Black Monday” sell-off.
- Wall Street is expecting a stronger report this time around. Economists expect the U.S. economy to add more than 160,000 jobs in August, up from 114,000 in July, according to FactSet estimates.
- The unemployment rate is expected to fall to 4.2 percent from 4.3 percent.
- The consumer price index in August is set to show annual inflation slowing to 2.6 percent from 2.9 percent year-on-year, FactSet data showed. The producer price index for the same month is set to show inflation falling to 1.7 percent from 2.2 percent.
All of these factors directly affect Wall Street. According to Cedra Markets’ head of global markets, the upcoming economic data, the Fed’s decision and its impact on the labor market are all crucial factors in determining Wall Street’s direction until the US elections, noting at the same time the Fed Chairman’s statements in which he promised to achieve balance in the economy and avoid a sharp decline, but he did not pay much attention to the negative labor market data.
Yarak concluded his statements by pointing out that September will witness strong corrections in the markets, expecting the severity of the correction to be linked to interest rates and US economic data.
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