HomeMost PopularInvestingCan Stocks Rebound After a Tough September?

Can Stocks Rebound After a Tough September?

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In the final week of September, the stock market is experiencing its typical downward trend for this time of year. September has historically been the worst month for the stock market, with an average decline of -1.1% according to a report from Yardeni Research. However, this September’s decline of 4.16% so far is worse than the historical average. The market is facing real threats to economic stability, which is contributing to the current downturn.

The Federal Reserve’s decision to continue raising interest rates, even with the potential negative impact on growth, has caused concern. The effects of previous rate hikes are just starting to be felt, and now might be a good time for the Fed to show some flexibility. Additionally, the housing market, which has been strong despite rising interest rates, is starting to show signs of instability. The latest report from the Federal Housing Finance Agency indicates a slowdown in house price appreciation.

Credit card losses at banks and other financial institutions are also rising at the fastest pace since the 2008/9 financial crisis, as reported by Goldman Sachs. This is alarming because it suggests that consumer confidence is waning. Consumer spending is a key driver of economic growth, and if people are pulling back due to financial circumstances, the economy could face tough times ahead.

In addition to these data-driven worries, there are other factors contributing to market uncertainty. The threat of a government shutdown and the ongoing UAW strike are both indicators of potential problems. It’s important to recognize that major market drops and recessions are rarely caused by a single factor. Instead, it’s a combination of negative influences that create fear and prompt businesses and households to cut back. While we haven’t reached that point yet, the losses in September suggest that traders and investors are anticipating it.

Investors should not dismiss the September market decline as a seasonal occurrence with little significance. The current economic landscape is facing multiple threats, and the realization of any one of them could have a detrimental impact on stocks, potentially leading to a bearish market. It may be wise for investors to reduce risk in their portfolios and consider protective measures. While timing the market perfectly is impossible, taking some long-term profits off the table or adding investments that perform well in a market downturn, such as inverse index funds or VIX trackers, could be a prudent strategy. Storm clouds are gathering, and it’s important to seek shelter before the storm hits.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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