Wall Street braces for Fed "hawkish pause", beware of September "spell"

The U.S. stock market continued to slump in the late summer, but the resilience of the S & P 500 index has just reached a milestone not seen in five years.

The S & P 500 has not closed more than 1.5% lower for 100 consecutive trading days.In the two months since its peak this year, the index has fallen by more than 1% four times, but beyond that, the daily volatility was as small as it has been since 2018.

That resilience stems in part from optimism that the economy has weathered the worst effects of the Federal Reserve's tightening policies. Moreover, investors are still putting money into stocks. According to LSEG Lipper, US exchange-traded equity funds had net inflows of $13.40 billion in the week ended September 13, the ninth in the past 12 weeks.

"It's unusual, but there's no reason for the stock market to take a dive yet," said Thomas Martin, senior portfolio manager at Globalt Investments. "Unless the Federal Reserve really surprises investors this week, there will be no reason to reposition, as we know that rate hikes are coming to an end”。

The S & P 500 closed little changed on Monday, down 1.2% since September. While gains have slowed since the first half of the year, investors have not been deterred by the Fed's highest base rate in more than two decades.

Consumer spending remains strong and Americans are beginning to believe price pressures are receding, which has supported market sentiment. The S & P 500 index is up 16% in 2023, and investors are waiting for the latest decision from the Federal Reserve in the early hours of Thursday, Beijing time. Economists polled by foreign media expect Fed officials, led by Powell, to keep interest rates steady and expect another rate hike this year.

Of course, the surge in oil prices to their highest since last year could make the Fed's fight against inflation tricky. In his speech last month, Powell said the door remained open for another rate hike if the economy did not cool enough to keep inflation down.

The performance of the S & P 500 since September does not bode well for the rest of the month, said Jeffrey Hirsch, editor of Stock Trader's Almanac.Over the past 20 years, markets have typically peaked in September on or around the 11th trading day of the month. From mid-September to the end of the month, the average decline is about 2%.

"We maintain our cautious outlook for the remainder of September and October," Hirsch wrote in a note to clients. "Cooling inflation is being challenged by higher energy prices and geopolitical issues are emerging."

Wall Street braces for Fed's "hawkish pause"

"We believe the Federal Reserve will take action this week."Hawks pause 'Policy, the futures market will reprice and there is a high probability of another rate hike before the end of the year ", said Megan Horneman, chief investment officer at Verdence Capital Advisors." Unfortunately, inflation can easily resurface, especially when energy prices start to seep into commodity prices. So we think the Fed needs to signal that they may not have finished raising interest rates yet ".

David Kelly, chief global strategist at JPMorgan Asset Management, said the Federal Reserve couldWill continue to maintain a hawkish stance, will still raise interest rates again in 2023 and ease policy slowly over the next few years. He noted that while policymakers may plan to lower interest rates modestly, a recession could trigger faster easing. Kelly added: "In the tide of monetary tightening, the risk of an economic downturn is increasing, so it is necessary for us to diversify our investments,Take a relatively defensive position in stocks"Extend the term of fixed income."

Lisa Shalett of Morgan Stanley Wealth Management said that while bullish investors continue to emphasize the progress of headline inflation, a key indicator closely watched by Federal Reserve Chair Jerome Powell suggests that,Interest rates will be "permanently higher"。

"With interest rates peaking and economic and corporate earnings growth accelerating again, the US equity market has clearly priced in a soft landing," she notes. "We remain sceptical of the bull market reacceleration/margin expansion argument. At best,We predict that the U.S. stock market will be in a range swing over the next six to nine months, and the back-and-forth between earnings and multiples will only create volatility。

For Paul Nolte of Murphy & Sylvest Wealth Management, the weakest two months of the year lived up to expectations and followed a typical pattern, adding: "The gambit is that stocks will weaken further into mid-to-late October before a year-end rally."

DBG ForexHe said much of the rally was based on expectations for earnings growth in the current quarter. Earnings growth usually drives stocks higher, but historically, most stocks in the market are already priced high, so there may not be much upside.