Fed-wary investors eye mounting risks to US stock rally

A Wall Street sign outside the New York Stock ExchangeNEW YORK - A hawkish stance from the Federal Reserve, soaring Treasury yields and a looming government shutdown are adding to a cocktail of risks that has spooked investors and clouded the outlook for U.S. equities.

"We've had resilient growth for the summer months but we're running into a period where there’s significant risk to the economy," said Charlie Ripley, senior investment strategist for Allianz Investment Management. "Investors are seeing a reason to take risk off the table and that's going to diminish some appetite" for stocks, he said.

"The Fed is overly confident in the soft-landing narrative," said Brian Jacobsen, chief economist at Annex Wealth Management. "A confident Fed is a dangerous Fed because it will ignore early signs of weakness."Other risks include high oil prices, a resumption of student loan payments in October and a government shutdown that is set to begin if lawmakers are unable to pass a budget by Sep. 30.

Meanwhile, a drawn out government shutdown could aggravate concerns over U.S. government gridlock and send Treasury yields even higher. Early this year, lawmakers waged a protracted battle to raise the debt ceiling. This drew a credit downgrade from ratings agency Fitch, analysts at Societe Generale wrote.

Such a decline would put the index at a 17.5 price to earnings ratio, in line with its 10-year average, he said in a Friday report.

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