As September rolls in, everyone from retail investors to seasoned financial analysts prepare for what is often the stormy season of U.S. markets. September has long been acknowledged as the most difficult month of the year for investors, and it’s off to a rocky start. That has contributed to a downward trend in futures on the first day of the month. The Dow was off 200 points, the S&P 500 was down 32 points, the Nasdaq Composite lost 150 points and the small cap Russell 2000 index tumbled 18 points.
September generally brings the start of a new fall legislative season, a key late-Summer milestone—the start of the last quarter of the third quarter! This three month spell generally brings in the most economic data all year which is often enough to swing the tide of market performance. Next week, September 8-12, looks to be immensely significant. The markets are trying to predict how the releases of the August PPI and CPI reports will play into all of this. Another set of Useful Economic Indicators, Real Average Hourly and Weekly Earnings have been scheduled to be released in this window.
FOMC observers point to the meeting of the Federal Open Market Committee (FOMC) that is scheduled for September. This announcement really throws another wrench of anticipation into this month’s economic landscape.
One particularly interesting day was September 1, when U.S. Treasury yields rose by an outsize amount. The 10-year yield was up 4 basis points to 4.27 percent and the 30-year yield rose 4 basis points to 4.97 percent.
That data pouring in during the first week of September will be key for assessing which way the market is headed. From September 2nd-5th, we can expect some crucial indicators including Manufacturing and Services Purchasing Managers’ Indices (PMIs) and Construction Spending numbers. In addition, we’ll get key data on Job Openings, JOLTS, Factory Orders, Durables reports, the Fed’s Beige Book, ADP Employment Change, Unit Labor Costs and the NFP – Non-Farm Payroll data.
The market will be especially focused on the Non-Farm Payrolls report. This renewed attention follows July’s shockingly low addition of just 73,000 jobs to the economy. According to analysts, how the market reacts in September will largely depend on these macro signs.
Moreover, recent trends in gold prices may suggest a shift in market sentiment toward a more aggressive monetary policy adjustment. Gold prices have been skyrocketing. This change could mean that market participants are starting to expect a 50 bps interest rate cut, rather than the almost unanimous expectation for a 25 bps cut.
With trade policies still in flux and potential economic shocks on the horizon, the consequences of these market changes are especially dire. The U.S. Appeals Court just reaffirmed the limits on presidential power over tariffs. This commentary is specific to the International Emergency Economic Powers Act (IEEPA).
“It seems unlikely that Congress intended, in enacting IEEPA (International Emergency Economic Powers Act), to depart from its past practice and grant the President unlimited authority to impose tariffs.” – U.S. Appeals Court