Wall Street’s September Trends

As September rolls around, Wall Street might want to take a moment to reconsider its usual approach. Historically, this month hasn’t been kind to the S&P 500, which has seen an average drop of 4.2% over the last five years. In fact, it declined in four out of those five years. When looking back a little further, the numbers don’t improve much; the index has averaged a 2% decline in September throughout the last decade, with losses occurring in six of those ten years.

This time, investors are facing a unique backdrop. In August, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all reached record highs. Additionally, there’s a potential catalyst for positive movement: Nvidia’s upcoming revenue report, which is expected to be released after Wednesday’s market close. Analysts are anticipating significant growth in both profits and revenues from the chipmaker compared to last year, which might help stabilize the recent artificial intelligence trade and potentially push key indices even higher as September begins.

Despite the historical downturns, JPMorgan’s traders remain cautiously optimistic. In a memo, they noted, “Nvidia could accelerate into the animal spirit this week. The setup is perfect.” They highlighted the current appetite for investments across various sectors, suggesting that confidence could last into 2028. This demand appears quite viable, considering the industry is currently in a tight supply situation, which has led to rising prices.

However, all eyes are on the Federal Reserve, especially with Chairman Jerome Powell’s speech on Friday raising some expectations about interest rate adjustments. If the Fed doesn’t cut rates in mid-September, the stock market might mirror past trends typical for this month. Current projections from the CME Group’s FEDWATCH tool indicate that traders see an 86% chance of a rate cut in September, with two further cuts expected in October and December.

Stocks did see an uptick on Friday following Powell’s comments, which suggested that he could tweak the central bank’s approach next month. Still, Tom Essaye from Sevens Report cautioned that the market might be a bit too optimistic. He pointed out that while Powell’s potential cuts may encourage a stable growth environment amid some inflationary pressures, the overall risk profile hasn’t significantly changed. In fact, he suggested it might even be a bit worse, indicating that the risk of stagnation is increasing rather than diminishing.