Weak start to September in US stock markets could impact next monetary policy decision

The U.S. stock markets have started September on the wrong foot, auguring a reputation as the worst month of the year for stocks.

On the first trading day of the month, the S&P 500 index posted a 1.91% decline, while the NASDAQ 100 plunged 2.9%.

These results reflect the historical seasonal weakness of September, which has consistently been one of the most challenging months for investors.

Historically, September has been the worst performing month for the S&P 500, with negative return averages since the 1970s. Over the past five years, the trend has been particularly adverse, with significant declines in 2022 (-9.3%) and 2021 (-4.7%). Although the September effect does not guarantee declines, it is important to highlight this pattern.

This weak start to September occurs in a crucial economic context. Following the release of the July employment data (NFP), market attention has shifted primarily from the inflationary front to the state of health of the U.S. economy.Currently, economic activity is the main focus, with an eye on the Fed’s rate cut decision, which could range between 25 and 50 basis points by mid-month.

This week is loaded with relevant economic data that could define the direction of monetary policy. The manufacturing PMI index has started the week showing contraction for the fifth consecutive time.

The JOLTS vacancy data and the non-manufacturing PMI, which are expected to worsen from July and August levels, respectively, will be closely watched by the markets. However, the key data will be the NFP, which will likely determine the magnitude of rate cuts, with a particular focus on the unemployment rate. If this fails to fall below 4.3% or if it accelerates, it could decisively influence the Fed’s decision towards further easing.

September has started on a bearish note for U.S. equity markets, in line with their negative seasonal track record. The combination of seasonal factors and an economically pivotal week suggests that investors will need to keep an eye on key economic data to be released in the coming days.