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The stock market could see a big September sell-off on these 7 risks

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There are seven risks that could spark a stock sell-off this month, according to market veteran Ed Yardeni.
He highlighted that the S&P 500 is at risk of falling about 7% to its 200-day moving average.
 “It is widely viewed as a rotten month for stocks, which has been true during 55% of Septembers since 1928.”

The stock market could be gearing up for a sell-off this month, according to market veteran Ed Yardeni, as September is seasonally the worst month of the year for equity returns.

“It is widely viewed as a rotten month for stocks, which has been true during 55% of Septembers since 1928,” he said.

The S&P 500 fell towards its 50-day moving average on Tuesday, and a decline to its 200-day moving average could be in store as it looks to find support. That would represent a 7% drop from current levels, though Yardeni added that such declines are typically good buying opportunities before a year-end Santa Claus rally. 

These are the seven risks that could knock down the stock market during the month of September, according to Yardeni.

1. Rising bond yields

Bond yields have been on the rise lately, with the 10-Year US Treasury yield closing back above the key 4.25% level on Tuesday. Driving yields up are rising oil prices and concerns about inflation, which, if still elevated could spark further interest rate increases from the Federal Reserve.

“There is the uncertainty about what the FOMC will decide to do on September 20,” Yardeni said. 

2. Rising oil prices

Oil prices jumped on Tuesday after Russia and Saudi Arabia both said they would extend their voluntary production cuts through the end of the year.

“The oil bulls may also be betting that China’s government will stimulate the Chinese economy, boosting oil demand. These developments heighten inflationary concerns.”

3. Inflation concerns

Investors are still recovering from the inflation shock that plagued markets throughout 2021 and 2022, and while progress has been made over the past year, there could still be some lingering market volatility in store if inflation re-accelerates.

“The jitters over the CPI next Wednesday are likely to increase in coming days. Truflation is tracking a 2.5% year-over-year increase, which would be a very happy surprise indeed. The Cleveland Fed’s CPI tracker has the headline and core rates at 3.8% and 4.5%, which would be unhappy surprises.”

4. The Fed

“Even the FOMC’s participants don’t know what they will decide at their next meeting. August’s CPI will have a big influence on whether they’ll vote to hike the federal funds rate or not. They will also provide their latest Summary of Economic Projections.”

The market currently expects the Fed to be finished with its interest rate hiking cycle, so any surprise increases would be viewed as a negative by investors.

5. A potential UAW strike

“The UAW is likely to go on strike against all three of Detroit’s automakers at the end of the month. That could depress the economy depending on how long it lasts and drive up car prices.”

6. Government shutdown

“Republican hardliners are playing a game of chicken with Republican moderates and Democrats over the federal budget. Instead of a compromise, the result could be a government shutdown, possibly by the end of the month, but more likely in October.”

7. China’s economy

“China’s economy is faltering, weighed down by its depressed property market and weak consumer spending. Government efforts are underway to stimulate the economy. If those efforts fail, oil prices could fall again and China would be a major source of global deflation.” 

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An American black bear in Kenia, Alaska.

Getty Images

There are seven risks that could spark a stock sell-off this month, according to market veteran Ed Yardeni.
He highlighted that the S&P 500 is at risk of falling about 7% to its 200-day moving average.
 “It is widely viewed as a rotten month for stocks, which has been true during 55% of Septembers since 1928.”

The stock market could be gearing up for a sell-off this month, according to market veteran Ed Yardeni, as September is seasonally the worst month of the year for equity returns.

“It is widely viewed as a rotten month for stocks, which has been true during 55% of Septembers since 1928,” he said.

The S&P 500 fell towards its 50-day moving average on Tuesday, and a decline to its 200-day moving average could be in store as it looks to find support. That would represent a 7% drop from current levels, though Yardeni added that such declines are typically good buying opportunities before a year-end Santa Claus rally. 

These are the seven risks that could knock down the stock market during the month of September, according to Yardeni.

1. Rising bond yields

Bond yields have been on the rise lately, with the 10-Year US Treasury yield closing back above the key 4.25% level on Tuesday. Driving yields up are rising oil prices and concerns about inflation, which, if still elevated could spark further interest rate increases from the Federal Reserve.

“There is the uncertainty about what the FOMC will decide to do on September 20,” Yardeni said. 

2. Rising oil prices

Oil prices jumped on Tuesday after Russia and Saudi Arabia both said they would extend their voluntary production cuts through the end of the year.

“The oil bulls may also be betting that China’s government will stimulate the Chinese economy, boosting oil demand. These developments heighten inflationary concerns.”

3. Inflation concerns

Investors are still recovering from the inflation shock that plagued markets throughout 2021 and 2022, and while progress has been made over the past year, there could still be some lingering market volatility in store if inflation re-accelerates.

“The jitters over the CPI next Wednesday are likely to increase in coming days. Truflation is tracking a 2.5% year-over-year increase, which would be a very happy surprise indeed. The Cleveland Fed’s CPI tracker has the headline and core rates at 3.8% and 4.5%, which would be unhappy surprises.”

4. The Fed

“Even the FOMC’s participants don’t know what they will decide at their next meeting. August’s CPI will have a big influence on whether they’ll vote to hike the federal funds rate or not. They will also provide their latest Summary of Economic Projections.”

The market currently expects the Fed to be finished with its interest rate hiking cycle, so any surprise increases would be viewed as a negative by investors.

5. A potential UAW strike

“The UAW is likely to go on strike against all three of Detroit’s automakers at the end of the month. That could depress the economy depending on how long it lasts and drive up car prices.”

6. Government shutdown

“Republican hardliners are playing a game of chicken with Republican moderates and Democrats over the federal budget. Instead of a compromise, the result could be a government shutdown, possibly by the end of the month, but more likely in October.”

7. China’s economy

“China’s economy is faltering, weighed down by its depressed property market and weak consumer spending. Government efforts are underway to stimulate the economy. If those efforts fail, oil prices could fall again and China would be a major source of global deflation.” 

Read the original article on Business Insider
Avatar

Read more

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