Are seasonal trends broken? The S&P 500 is expected to rise in September for the first time in 5 years

The Zhitong Finance App learned that the US stock market is experiencing a steady rise in September. Normally, this month is a month of weak performance, but after the Federal Reserve announced a sharp interest rate cut, the market reversed this seasonal trend.

Although the S&P 500 index declined slightly on Friday, it has been rising for the third week in a row, leading to a cumulative increase of 1.6% in September. According to FactSet data, if this increase is maintained on the last trading day of September, the S&P 500 index will record an increase in September for the first time since 2019.

Anthony Saglimbene, chief market strategist at Ameriprise Financial, said in a telephone interview on Friday: “Currently, expectations for a soft landing are fully reflected in stock prices.” He mentioned that September is usually a poor month, but after the Federal Reserve cut interest rates drastically, this “seasonal factor” did not play a role.

The Federal Reserve announced on September 18 that it will cut the benchmark interest rate by half a percentage point and begin a new cycle of interest rate cuts. Federal Reserve Chairman Powell said that the current interest rate cut was based on the significant reduction in US inflation and the need to keep the labor market stable.

According to the latest data released on Friday, the US personal consumer expenditure price index (PCE) annualized growth rate fell to 2.2% in August. After the inflation data was released, interest rates in the US bond market fell, treasury yields fell, and expectations for federal funds futures showed that the possibility that the Federal Reserve would cut interest rates sharply again in November increased.

The two-year US Treasury yield fell to 3.562% on Friday, the longest four-week decline since December 2020, according to Dow Jones market data. The 10-year US Treasury yield also fell to 3.751%. US Treasury yields generally fell throughout September, and investors expected the Federal Reserve to start cutting interest rates this month.

According to data from the CME FedWatch tool, as of Friday, the federal funds futures market shows that the Fed is 54.8% likely to cut the benchmark interest rate by another half point at the next policy meeting in November, while the possibility of cutting interest rates by a smaller quarter point is 45.2%.

Cyclical stocks, leading technology stocks

Investors will continue to focus on data such as inflation, economic growth, and corporate profits, which are critical to the further rise in the stock market. “Investors want to see the upside expand,” Saglimbene said. He also mentioned that the recent excellent performance of cyclical stocks is a good example.

Over the past three months, the materials, industrial, and financial sectors in the S&P 500 index surpassed the technology sector, indicating that as the US economy continues to grow, cyclical stocks are leading the market. According to FactSet, the industrial sector of the S&P 500 has risen 10.7% over the past three months, the materials sector has risen 9.8%, and the financial sector has risen 10.3%. In contrast, the tech sector rose by only 0.4% over the same period.

This shift in market leadership is particularly evident, as the tech sector has risen close to 29% so far in 2024, driving the S&P 500 up 20.3% year to date.

This week, the materials sector of the S&P 500 index rose 3.4%, the biggest weekly gain since December last year. The tech sector was up only 1.1% this week, while the S&P 500 index rose 0.6% overall this week.

Saglimbene said that cooling inflation, signs that the US economy is still growing, and the Federal Reserve's sharp interest rate cuts brought new impetus to expectations of a “soft landing” in September. He also pointed out that corporate earnings reports for the third quarter will be released starting next month, which will be the key for the market to determine whether the stock market can continue to rise.

The Dow Jones Industrial Average rose 0.3% to a new high on Friday, while the S&P 500 fell 0.1% and the Nasdaq Composite fell 0.4%. According to Dow Jones market data, the three major US stock indexes all rose for the third week in a row.