Investors should fasten their belts for a volatile fall as September begins. This month is historically known as the cruelest for stocks, with data going all the way back to 1928 showing that Wall Street reports significant losses and enters into “correction mode” as soon as the autumn kicks off. The Nasdaq and the S&P 500 have been on a tear in the first half of the year, but since late August, the indexes started to falter. Anthony Denier, CEO of Webull, a commission-free trading platform, says that there are significant risks adding pressure on the September outlook. The period is considered the weakest for stocks as seasonal patterns come into play in a highly tense market environment.
Tech stocks still pose the greatest threats. With some, such as Nvidia and Tesla, reporting a valuation of 250 times earnings, it won’t take much bad news to frighten investors and spark a brutal sell-off this fall. Given that seven tech stocks, known as the Magnificent Seven, account for 30% of the S&P 500 market value, and 50% of the Nasdaq’s, downside risks are getting increasingly higher, and persistent losses are likely to trigger some nasty contagion this month.
On top of that, with bond yields rising and the lack of clarity from the Federal Reserve on interest rates, there is still a lot of uncertainty about the state of the U.S. economy. Another factor impacting the outlook for stocks is the inversion of the U.S. Treasury’s yield curve, which started to worsen in June. Inverted yield curves are an omen for economic meltdowns, and this particular inversion has “been screaming recession for over a year now”, highlights Russ Mould, investment director at AJ Bell.
Many other big names in the investing world made some gloomy statements about the stock market over the past few weeks. Citigroup actually predicted the S&P 500 would lose around 10 percent of its value by the end of the quarter. Notorious Wall Street strategists, including Mike Wilson from Morgan Stanley and Marko Kolanvovic from JP Morgan Chase, also shared downbeat forecasts for September.
More recently, Societe Generale’s chief global strategist Albert Edwards pointed to the rising number of bankruptcies as the next catalyst for the imminent S&P 500 downturn. In the face of all of these gloomy signs, Michael Burry, the “Big Short” investor who became famous for correctly predicting the historic collapse of the housing market in 2008, has bet more than $1.6 billion on a Wall Street crash. Insiders are aware of the systemic risks that can spark a September stock market crash unlike any other. They’re taking precautions right now because they know something big is about to break. Many determinants are creating a dangerous environment of risk exposure, and those who are still ignoring the emerging threats could face painful losses this month. An era of volatility is already upon us, and all that it takes to bring the Nasdaq and the S&P 500 down is the realization that the U.S. economy is doomed to fail.