The first week of what has traditionally been the worst month of the year for U.S. stocks got underway on Tuesday, with more poor economic data from China and further crude oil supply cuts by Saudi Arabia and Russia.
September tends to be a disappointing period for the S&P 500 index SPX, which has delivered an average monthly return of minus 0.73% since 1945, according to CFRA Research. While some investors are holding out hope that this month may not be so bad given the U.S. economy’s ongoing strength and the S&P 500’s year-to-date gain of around 17%, others point to the risk of a worrisome combination of easing U.S. growth plus inflation that rears up again.
Meanwhile, six-month BX:TMUBMUSD06M through 30-year Treasury yields BX:TMUBMUSD30Y all jumped, as did the ICE U.S. Dollar Index DXY, as fed funds futures traders priced in a slightly greater chance of a 25-basis-point rate hike by the Federal Reserve in November or December, as well as higher likelihood that rates will stay elevated through early next year. Another quarter percentage point interest rate hike would push the fed funds target range to between 5.5%-5.75%.
“We are nowhere near estimates of what we would call fair value. I wouldn’t say we were calling for a reacceleration of inflation, but it will likely be hard to get back to 2% inflation and the question is whether the Fed is going to be satisfied with 3% inflation. We could see that the economy slows down simultaneously, and it’s certainly a risk that could be the catalyst for a recession later this year or early next.