The Trump-fed rally in stocks, lately showing signs of faltering as the long Wall Street summer nears its end, faces a key test in the weeks ahead with the approach of a historically unkind season for equities and a clutch of issues – such as raising the debt ceiling – awaiting the return of lawmakers to Washington.
With September, typically the worst month in the year for stocks, on the doorstep, investors are likely to be nervous that cracks seen in the more than-eight year bull run in equities will turn into a steeper selloff.
“September is historically one of the most volatile months of the year,” said Michael Purves, chief global strategist at Weeden & Co in New York. “Why do you want to chase the S&P right now if there’s a good shot that September can be an ugly, volatile month.”
On Thursday, the S&P 500 .SPX recorded its biggest daily percentage drop in three months, hurt by speculation about White House Economic Adviser Gary Cohn’s possible departure, and failed to reverse course even after the White House said he was not leaving. Stocks edged higher on Friday.
The weakness came just as stocks were recovering from last week’s swoon on worries linked to escalating tensions between North Korea and the United States.
The market is up more than 8 percent so far this year, fueled by hopes of bumper corporate earnings and expectations that the Trump administration’s policies will spur growth. Yet the catalysts could be over.
“This wave of good news coming in the form of this double-digit earnings growth is in the rear-view window now and I think it’s kind of hard to look out and see what’s the catalyst to get buyers to jump back in aggressively,” said Eric Kuby, chief investment officer, North Star Investment Management Corp., Chicago.
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