Will the US Stock Market Enter a Quiet Period in September?

The Worst Month of the Traditional Year
Big FOMC Event on the 21st
Office Return Delayed Due to Delta Variant
Political Risks from Afghan Withdrawal

[Asia Economy Reporter Yujin Cho] There are forecasts that the explosive liquidity-driven rally in the U.S. stock market since the COVID-19 pandemic will enter a pause period in September. Hinting at the September market risk, all three major indices of the New York Stock Exchange closed lower on the last day of August.

On the 31st (local time) at the New York Stock Exchange (NYSE), the three major indices?the Dow Jones Industrial Average, S&P 500, and Nasdaq?all closed down. The S&P 500 and Nasdaq, which had reached record highs the previous day, fell 0.18% each to 4520.47 and 15,238.48 respectively, as profit-taking selling surged.

Since the beginning of this year, the U.S. stock market has been on a rising rally without a crash, continuously hitting record highs. The representative index, the S&P 500, has risen for seven consecutive months on a monthly basis, marking the longest streak since the 10-month rally that ended in December 2017. The Nasdaq also surpassed the 15,000 mark for the first time in 50 years since its inception in 1971 on the 24th of last month.

The U.S. Federal Reserve (Fed) maintained zero interest rates during the COVID-19 pandemic, while the Joe Biden administration injected massive liquidity into the market with a $1.9 trillion super stimulus package, boosting investor sentiment.

However, the prevailing view is that this upward trend will reverse starting in September. The U.S. financial media CNBC reported on the day, "September has a notorious reputation as the worst month of the year for the stock market," adding, "The market faces the risk of turning downward this month."

Historically, September is known as the "devil's month" in the stock market. According to financial research firm CFRA, since the end of World War II in 1945, the S&P 500 has averaged a 0.56% decline every September, making it the worst performing month on a monthly basis. The market has only recorded growth in September 45% of the time.

Especially during the first year of a presidential term, September's market performance has been worse. On average, the S&P 500 index fell 0.73% during this period, with a larger decline.

Experts say that while clear signs of a September correction are not yet evident, risk factors are increasing. Major events such as the Federal Open Market Committee (FOMC) meeting scheduled for the 21st-22nd of this month, and various economic data releases including employment and inflation figures, are placing significant pressure on the market.

In particular, inflation and the resulting monetary policy are considered key factors that will determine the market's direction. Earlier, The Wall Street Journal (WSJ) reported that Federal Reserve officials have agreed to begin tapering asset purchases in November.

Although the scenario of announcing tapering this month has become less likely, ongoing concerns about the pace and duration of tapering are expected to negatively impact investor sentiment, experts say.

This year, additional risks such as the Delta variant and the withdrawal from Afghanistan have also emerged. Due to the spread of the Delta variant, major companies are delaying their return to office, raising concerns that the normalization of corporate profits will slow. Political risks such as the Afghanistan withdrawal are also cited as threats to the market.

Although the U.S. completed its troop withdrawal and ended the Afghanistan war on this day, political unease is rising as 100 to 200 Americans were unable to evacuate. Julian Emmanuel, Head of Equity and Derivatives Strategy at BITG, said, "If signs of greater instability appear in the Afghanistan region, the political repercussions could be prolonged."

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, said, "It would be natural to assume the market will follow historical patterns," adding, "There are risk factors that could cause a decline of more than 3-4% in the U.S. stock market, and that timing could be September."

This content was produced with the assistance of AI translation services.