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  • Writer's pictureThe San Juan Daily Star

Fed Meeting Comes During Historically Tough Week for US Stocks

The U.S. stock market could be set for a rocky second half of September, particularly the week after the September 15 monthly options expiration, a Nomura Securities analysis of data going back more than three decades, shows.


The so-called “September Effect,” the apparent trend where U.S. stock market returns are relatively soft in September, has been especially acute for stocks in the week after options expiration, according to Nomura.


In 26 of the last 33 years, the S&P 500 Index fell in the week following the September options expiration, with a median drop of 1%, the analysis showed.


This time around, the week will encompass the Federal Reserve’s monetary policy meeting, set to conclude on Sep. 20. Investors expect the central bank to hold rates steady at the meeting, but are looking for clues on whether policymakers plan to deliver another increase later this year.


Nomura strategist Charlie McElligott said the weakness may be linked to selling related to the fiscal year-end for mutual funds and tax-related selling by households.


Mutual funds often sell stocks in September ahead of the Oct. 31 tax year-end to make their portfolios look more attractive to investors, a process known as “window dressing,” which can weigh on stocks.


Additionally, stocks can come under pressure in September as individual investors may sell to pay their estimated taxes.


The S&P 500 is down 0.9% month-to-date, and investors are bracing for a host of market-moving catalysts in coming days, including Wednesday’s report on U.S. consumer prices.


One potential silver lining: when stock rallied for the January-August period, as they have this year, September tends to be positive, according to an analysis by Tallbacken Capital Advisors.


The overall mean return for all 95 Septembers since 1928 is -1.1%, but screening for those 34 years when the S&P 500 index was up more than 10% through August, the stocks gained 0.3% on average in September, the firm’s data showed.


In 26 of the last 33 years, the S&P 500 Index fell in the week following the September options expiration, with a median drop of 1%, the analysis showed.


This time around, the week will encompass the Federal Reserve’s monetary policy meeting, set to conclude on Sep. 20. Investors expect the central bank to hold rates steady at the meeting, but are looking for clues on whether policymakers plan to deliver another increase later this year.


Nomura strategist Charlie McElligott said the weakness may be linked to selling related to the fiscal year-end for mutual funds and tax-related selling by households.


Mutual funds often sell stocks in September ahead of the Oct. 31 tax year-end to make their portfolios look more attractive to investors, a process known as “window dressing,” which can weigh on stocks.


Additionally, stocks can come under pressure in September as individual investors may sell to pay their estimated taxes.


The S&P 500 is down 0.9% month-to-date, and investors are bracing for a host of market-moving catalysts in coming days, including Wednesday’s report on U.S. consumer prices.


One potential silver lining: when stock rallied for the January-August period, as they have this year, September tends to be positive, according to an analysis by Tallbacken Capital Advisors.


The overall mean return for all 95 Septembers since 1928 is -1.1%, but screening for those 34 years when the S&P 500 index was up more than 10% through August, the stocks gained 0.3% on average in September, the firm’s data showed.


Or it may just be a series of idiosyncratic news events.


Either way, it was enough to hand Wall St stocks their best day of the month on Monday just as 10-year Treasury yields eye recent 15-year highs again above 4.3% ahead of today’s auction of new 10-year paper.


Although both stock futures and bond yields edged back a touch again on Tuesday ahead of the bell, the fact they are moving in tandem ahead of a critical week for macro policy is notable.


Curiously, it was the traditionally most interest-rate sensitive sectors that led Monday’s stock rally, with the NYFANG+ index of mega cap tech and digital giants clocking a daily gain of more than 2% for the first time in September.


That jump was led by Tesla’s 10% surge after Morgan Stanley upgraded its stock recommendation to “overweight” and said its Dojo supercomputer could boost the company’s market value by nearly $600 billion.


The renewed excitement about a quantum leap in artificial intelligence also saw Meta Platforms advance more than 3% after a report it was working on a more powerful AI system.


Recovering somewhat from the China-related hit last week, Apple stock also rebounded as it prepared to launch its latest iPhone on Tuesday and signed a new deal with chipmaker Qualcomm for the supply of 5G modem chips at least until 2026 - before a previous agreement ends this year.

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