After a robust rally from May to July, U.S. equity indices have taken a hit, entering a choppy period for investors. The slump began with the unwinding of the Japanese “Yen Carry” trade, followed by a sell-off in tech stocks triggered by Nvidia (NVDA) reporting its first margin contraction in years. Fortunately, stocks regained ground after reassurances from NVDA CEO Jensen Huang, indicating no slowdown in demand. Oracle (ORCL) CEO Larry Ellison echoed this sentiment, revealing an interesting tidbit of Elon Musk and himself urging Huang to accept their money for more AI GPUs.
As market volatility persists, what lies ahead for stock movements?
September Seasonality is Bearish
Historical research from Goldman Sachs (GS) shows that the latter half of September has historically been unfavorable, with substantial negative returns during ten out of the last eleven days since 1950.
Image Source: Goldman Sachs
Federal Reserve (FOMC) is Wednesday
The upcoming FOMC interest-rate decision and Fed Chair Jerome Powell’s press conference are scheduled for 2:00 pm and 2:30 pm EST, respectively. Powell recently confirmed the first interest rate cut since 2020 due to declining inflation rates and signs of a slowing job market. However, uncertainty looms over the extent of the rate cut, with market expectations shifting towards a potential 50-bps cut, compared to the initial 25-bps anticipation. A 0.75% rate cut demand from Senator Elizabeth Warren seems improbable, adding to the uncertainty. Investors might use the announcement as an opportunity to capitalize on any news-driven market movements.
Triple-Witching Expiration
Triple witching, where stock options, stock index futures, and stock index options expire simultaneously, is on the horizon this Friday, September 20th. This quarterly event typically triggers short-term volatility as traders and investors must make decisions on expiring positions.
Following a positive week in the stock market, investors should prepare for potential turbulence in the near term as we navigate through challenging September seasonality, the pending interest rate decision, and the impending triple-witching expiration.
