The Deciding Month
Although this summer has seen accelerated gains across several financial markets, indices have risen dramatically since the beginning of this year. Year to date, the returns for the S&P 500 and the Nasdaq Composite have been 18.09% and 35.09%, respectively. Despite rates nearing twenty-year highs, investors have shown great confidence in both the strength of the economy and new technologies such as artificial intelligence. In August, however, this long-standing rally was tested, with resistance negating nearly all of July’s upward action. Investors did seem to light the flame once again, with last week’s stronger gains hoping to rekindle the fire headed into September. With recent data depicting slowed growth in the job market and consistent disinflation, investors are hopeful the Federal Reserve’s cautious plan of a soft landing will pan out.
On the contrary, there remain several obstacles standing in the way of another rally. Although the majority consensus believes in a rate pause for this upcoming Fed meeting, their choices in November and December are quite unclear with higher possibilities of rate hikes over cuts. Currently, companies in the S&P 500 are trading at 19 times their projected earnings over the next twelve months, far higher than the ten-year average of 17.7. Some bearish investors believe the mania behind AI could have gone too far, with even Nvidia’s stellar earnings report failing to push another surge. Other factors such as a growing federal deficit could spell more harm for inflation, adding to the Fed’s lengthy list of worries. As investors proceed into September, they should monitor manufacturing data and the next batch of inflation data before the Fed’s meeting which comes on September 22nd.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
