The latest stock market news is the next step for stocks after battling extreme volatility for most of the year. The stock market began August on a high note with the S&P 500 surging 5.2% to a four-month high in the first 10 days of the month.
The bear trend which had clobbered the market was, however, not over as stocks reversed course with the benchmark index dropping again, ending the month down 4.2%.
Since July, there has been a little decline in recession fears, but the stock market continues to focus on new concerns, such as high inflation and the Federal Reserve’s response to it.
According to The Stock Trader’s Almanac, September is typically the month when the stock market’s three major indexes perform the worst.
Many theories are circulating as to why this is the case, with some experts describing the annual drop-off as the “September effect,” which refers to historically weak stock market returns for the month.
Investors are usually believed to want to sell their holdings in September after returning from their summer vacation to lock in gains for the year. Some market experts also think that now is the time when families need money for back-to-school expenses or to pay for tuition.
Additionally, mutual fund companies start paying dividends in September, which may result in some tax selling.
Nonetheless, investors, having to endure a horrid year so far, now have to brace themselves for what’s going to happen next. The U.S. Federal Reserve beginning to change policy and reduce liquidity at this point of an economic recovery is not all that unusual. Tighter financial conditions have an impact on stocks, particularly the more speculative ones.
Some experts in the stock market are still hopeful of investors breaking the September sales trend this year. This is due to the fact that much of the de-risking has already happened, thanks to the unprecedented collapse that occurred during the first half of 2022.
One factor leading to the somewhat optimistic response from experts is the fact that many equities will become even more affordable once analysts have finished issuing downgrades this time. At that point, institutional investors will jump in and be more active than usual.
The tendency has already begun in semiconductors. The lower forward guidance offered by Micron Technology in its earnings release on June 30 led analysts to lower their calendar 2023 expectations by about 60%.
Its stock still soared by more than 18% from July 1 and August 4 because of the lower revisions indicating to investors that Micron had finally been de-risked after it had already taken a beating earlier in the year.
It should, however, be noted that the Feds are still in control going into September. This increases the importance of the economic reports that will be made public before the Federal Open Market Committee (FOMC) meeting in September, usually the month when stock prices are at their lowest.
Speaking at the Jackson Hole conference, Fed Chair Jerome Powell stated that the central bank’s responsibility to provide price stability was “unconditional,” adding that the Fed would not change any policy until policymakers were confident inflation was contained, even if it meant a further slide for the U.S. economy.
Charlie Ripley, senior investment strategist for Allianz Investment Management has warned that “Investors shouldn’t plan for a pivot yet.”
Experts have indicated to investors that they shouldn’t let the bears scare them out of taking advantage of selloffs. They have also, however, warned that inventors should not also chase gains when there’s a lot of market strength.
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