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Stocks Maintain Momentum in Holiday-Shortened Week Despite Seasonal Weakness and Fed Rate Decision

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Stocks Look to Maintain Momentum Ahead of Fed Rate Decision

Stocks are poised to continue their upward trend in the upcoming holiday-shortened week, despite facing a seasonally weak period for markets before the Federal Reserve’s September rate decision. The Nasdaq Composite has already gained over 3% this week, reflecting renewed risk-on sentiment in Wall Street. The Dow Jones Industrial Average is up by more than 1%, while the S&P 500 has risen more than 2%. The recent breakout of major indexes above their respective 50-day moving averages suggests improving short-term momentum, giving investors hope for continued bullishness. Chief investment strategist at CFRA, Sam Stovall, stated that the US equity markets could keep climbing, even in the face of challenges.

Challenges Ahead for Stocks

Although stocks are expected to ascend, there are challenges on the horizon. Historically, September has been the worst month for markets, and investors will need to digest significant inflation data before the Fed’s September policy meeting. The central bank’s rate decision will be announced on September 20. Ryan Detrick, chief market strategist at Carson Group, advised investors to continue on their current path, as signs of a slowdown in the economy would likely prompt the Fed to ease monetary policies.

Watching Inflation

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The rise in the US unemployment rate has led to increased market speculation that the Fed will hold rates steady in September and potentially in November as well. However, before the Fed meeting, investors will closely monitor various economic reports, including inflation data. The consumer price index for August is set to release on September 13, and the producer price index for the previous month is expected to be released on September 14. The personal consumption expenditures price index, which is the Fed’s preferred measure of inflation, is due out on September 29. Ultimately, the trajectory of inflation will determine the Fed’s rate decision.

Bullish Signals in Historically Weak Month

September is widely regarded as the weakest month for equities. CFRA noted that since 1945, the S&P 500 has recorded its worst average return in September, with more declines than gains. However, there have been exceptions to this trend, such as in 2010 and 1954. Despite potentially unfavorable factors like higher yields and weak data from China, recent momentum suggests that stocks could continue to rise in the near term. Analysts from HSBC and Bank of America also expressed optimism for US stocks. Although volatility is expected in August and September, market experts believe that as long as the economy remains strong, there will be better times ahead.

Next Week’s Economic Calendar

  • Monday, Sept. 4: Labor Day holiday
  • Tuesday, Sept. 5: Durable Orders final (July) and Factory Orders (July)
  • Wednesday, Sept. 6: Trade Balance (August) and PMI Composite final (August) and PMI Services final (August)
  • Thursday, Sept. 7: Continuing Jobless Claims (8/26), Initial Claims (9/2), Unit Labor Costs final (Q2), Productivity final (Q2), and earnings from Fastenal
  • Friday, Sept. 8: Wholesale Inventories final (July), Consumer Credit (July), and earnings from Kroger

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