U.S. Stock Market Faces September Slump: Analysts Warn of Prolonged Decline Amid Historic Trends
Wednesday, Sep 4, 2024 11:00 pm ET
2min read The recent downturn in the U.S. stock market has sparked widespread concern among investors that the current decline is far from over. Wall Street analysts caution that the market may continue to fall at least until early October.
On the first trading night of September, U.S. stocks opened low and continued to decline throughout the session. Major indices, including the S&P 500, Nasdaq, and Dow Jones, posted significant losses, with Nvidia alone seeing its market value plummet by $2 trillion. This drop represented the largest single-day decrease since August 5, igniting fears of a prolonged downturn.
Historically, September has not been kind to U.S. stocks, with seasonal factors often contributing to lower market performance. As summer ends, investors tend to shift their strategies from riskier assets to more conservative ones. Additionally, the conclusion of the earnings season in September means corporate performance and outlooks can significantly influence investment decisions, adding to the volatility.
From 1945 to the present day, September has consistently shown the lowest average returns among the 12 months, second only to May's "Sell in May" phenomenon. This year, with the added uncertainty of the election cycle, even minor market perturbations can drive rapid capital outflows.
Compounding these seasonal factors, several "black swan" events have also historically occurred in September, including the Russian debt crisis in 1998, Lehman Brothers' bankruptcy in 2008, and the U.S. credit rating downgrade in 2011. Although the negative news seen lately is not as severe, it has indeed triggered a significant market drop.
For instance, the ISM Manufacturing PMI for August fell short of market expectations for the fifth consecutive month, remaining below the break-even point and exacerbating fears of an economic recession. In the subcategories, new orders and employment indicators declined, while inventory levels grew, indicating businesses are in a phase of forced inventory replenishment.
Additionally, data from the semiconductor industry showed that July sales were below seasonal trends, reflecting the industry's weakened state. Nvidia, which has shown robust financials historically, recently faced antitrust scrutiny from the U.S. Department of Justice. This has raised concerns about potential hefty fines the company could face, further denting investor confidence.
Given these factors, it seems unlikely that the market will see a strong rally any time soon. The Federal Reserve has limited room for further monetary easing, especially with inflation not fully under control. The valuation of U.S. stocks remains high compared to overseas assets, making foreign investors cautious.
The outcome of the U.S. elections is expected to be a significant determinant of future market performance. Policy differences between candidates—ranging from tax regulations to Federal Reserve influence—could either curb or spur the market.
Moreover, the upcoming nonfarm payrolls data this Friday will be a crucial indicator for the market trajectory. Investors are keenly awaiting these numbers to gauge economic health and the likelihood of continued policy support from the Federal Reserve.
In summary, while short-term forecasts predict continued market volatility, investors are advised to stay cautious yet prepared for buying opportunities that may arise from the downturn.
On the first trading night of September, U.S. stocks opened low and continued to decline throughout the session. Major indices, including the S&P 500, Nasdaq, and Dow Jones, posted significant losses, with Nvidia alone seeing its market value plummet by $2 trillion. This drop represented the largest single-day decrease since August 5, igniting fears of a prolonged downturn.
Historically, September has not been kind to U.S. stocks, with seasonal factors often contributing to lower market performance. As summer ends, investors tend to shift their strategies from riskier assets to more conservative ones. Additionally, the conclusion of the earnings season in September means corporate performance and outlooks can significantly influence investment decisions, adding to the volatility.
From 1945 to the present day, September has consistently shown the lowest average returns among the 12 months, second only to May's "Sell in May" phenomenon. This year, with the added uncertainty of the election cycle, even minor market perturbations can drive rapid capital outflows.
Compounding these seasonal factors, several "black swan" events have also historically occurred in September, including the Russian debt crisis in 1998, Lehman Brothers' bankruptcy in 2008, and the U.S. credit rating downgrade in 2011. Although the negative news seen lately is not as severe, it has indeed triggered a significant market drop.
For instance, the ISM Manufacturing PMI for August fell short of market expectations for the fifth consecutive month, remaining below the break-even point and exacerbating fears of an economic recession. In the subcategories, new orders and employment indicators declined, while inventory levels grew, indicating businesses are in a phase of forced inventory replenishment.
Additionally, data from the semiconductor industry showed that July sales were below seasonal trends, reflecting the industry's weakened state. Nvidia, which has shown robust financials historically, recently faced antitrust scrutiny from the U.S. Department of Justice. This has raised concerns about potential hefty fines the company could face, further denting investor confidence.
Given these factors, it seems unlikely that the market will see a strong rally any time soon. The Federal Reserve has limited room for further monetary easing, especially with inflation not fully under control. The valuation of U.S. stocks remains high compared to overseas assets, making foreign investors cautious.
The outcome of the U.S. elections is expected to be a significant determinant of future market performance. Policy differences between candidates—ranging from tax regulations to Federal Reserve influence—could either curb or spur the market.
Moreover, the upcoming nonfarm payrolls data this Friday will be a crucial indicator for the market trajectory. Investors are keenly awaiting these numbers to gauge economic health and the likelihood of continued policy support from the Federal Reserve.
In summary, while short-term forecasts predict continued market volatility, investors are advised to stay cautious yet prepared for buying opportunities that may arise from the downturn.
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