- US stocks are one week into what's historically been their worst month of the year, in what is known as "The September Effect".
- The S&P 500 is currently down about 1% so far this month.
US stocks are one week into what's historically been the worst month of the year for the market.
Since 1945, the S&P 500 has slid 0.7% on average in September, data from CFRA Research shows. This year, it's down by about 1% so far in the month.
Ed Yardeni, president of Yardeni Research, wrote in a Tuesday note to clients that September is "widely viewed as a rotten month for stocks", and listed the key risks facing investors this time around.
High bond yields
Yardeni points to elevated yields in the bond market as a factor that dulls the appeal of equities. The rate on 10-year Treasuries hit a 16-year high of 4.36% recently - it was around 4.25% on Friday.
US Treasuries are considered some of the safest assets in the world and when their yields rise, the securities become relatively more attractive to investors, potentially leading them to reduce investing in equities.
"In addition, investors and traders are jittery about next Wednesday's CPI report for August," Yardeni wrote. A higher inflation rate could push bond yields higher and add pressure on the Federal Reserve to raise interest rates further - which would be negative for stocks.
Rising oil prices
Higher global oil prices are fueling the threat of inflation again, undermining investor sentiment in the stock market.
WTI crude oil prices have rallied 38% from lows reached in May to hit the highest levels since November, with producers including Saudi Arabia and Russia extending output cuts.
Yardeni also sees the risk that potential economic stimulus measures by China could boost oil demand and thus "heighten inflationary concerns".
Inflation, interest rates
Inflation concerns among stock-market investors may grow ahead of the consumer-price report out of the US, due September 13.
"The jitters over the CPI release next Wednesday are likely to increase in coming days," Yardeni wrote, citing the uncertainty surrounding the forthcoming release.
The Cleveland Fed's CPI tracker is predicting headline and core inflation rates for August at 3.8% and 4.5%, which would be "unhappy surprises," he added. US inflation measured 3.2% in July.
"Even the FOMC's participants don't know what they will decide at their next meeting on September 19 and 20," Yardeni warned, referring to the forthcoming meeting of Federal Reserve policymakers to decide on interest rates.
United Auto Workers strike looms
Workers at Detroit's "Big Three" automakers - Ford, GM, and Stellantis - are preparing to strike after a new labor contract put forward by the United Auto Workers was rejected by the companies.
If the strike goes ahead later this month, that could "depress the economy depending on how long it lasts, and drive up car prices," Yardeni said, highlighting another risk for equity investors.
A potential government shutdown
Earlier this year, the US only just averted a federal government shutdown caused by political wrangling over the size and scope of national spending.
"Republican hardliners are playing a game of chicken with Republican moderates and Democrats over the federal budget," Yardeni wrote.
"Instead of a compromise, the result could be a government shutdown, possibly by the end of the month, but more likely in October."
A slowdown in China
China is facing a slew of economic headwinds at the moment that includes depressed manufacturing output, rocketing youth unemployment, and an imploding property sector.
"Government efforts are underway to stimulate the economy," wrote Yardeni. "If those efforts fail, oil prices could fall again, and China would be a major source of global deflation."
While falling prices may sound like good news for consumers' purchasing power, they in fact pose a danger to the wider economy as individuals may postpone purchases in the hopes of further reductions. A fallback in Chinese consumer spending could affect stocks with significant exposure to that market, such as Tesla.