What Will September Have in Store For Stocks?

A possible auto worker's strike, a hawkish Fed and China's woes weigh heavily on the market

• The Fed's Powell shifts the market. Economic data plays a pivotal role as an auto strike looms.
• Auto industry tension shapes market dynamics.
• Markets eke out modest gains upon closing.

On Friday, a chorus of hawkish sentiments from Federal Reserve chairman Jerome Powell affected the stock market's trajectory, erasing early morning gains.

Despite this turbulence, markets managed to eke out modest gains upon closing. The S&P 500 concluded the week with a fractional increase of under 1%, while the Nasdaq Composite enjoyed a more robust gain of 2%. Despite these weekly upticks, stocks are poised for their first month of decline since February. The upcoming week's deluge of economic data could potentially reshape the market's course, either ushering in a robust September or marking a hesitant beginning.

After the annual Jackson Hole meeting's culmination, both chairman Powell and Christine Lagarde, president of the European Central Bank, reiterated their resolute stance on interest rates. After their remarks, the likelihood of another rate hike in the remainder of the year escalated according to data from the Chicago Mercantile Exchange. While an approximately 79% probability looms for the Fed to maintain rates in September, the odds of a November rate increase have now surpassed 50%.

The Federal Reserve's forthcoming actions hinge on a barrage of economic indicators slated for release during the week. Investors are bracing for a volley of fresh figures, spanning the housing market, a new reading on personal consumption expenditures (PCE), and culminating in the latest employment report on Friday.

The PCE metric holds particular significance as the Fed's favored gauge for measuring inflation. Eyes are trained on core month-over-month and year-over-year figures, both scheduled for Thursday. The market anticipates a 0.2% month-over-month increase and a 4.2% year-over-year uptick. Meanwhile, the employment report on Friday anticipates non-farm payrolls to grow by 170 thousand, with the unemployment rate expected to maintain its July level of 3.5%.

Another developing narrative on the radar is the looming specter of a potential auto industry strike. United Auto Workers (UAW) members have presented demands that could disrupt production plants at prominent automakers including General Motors (GM), Ford (F) and Stellantis (STLA). With demands for a 46% pay increase, pension system changes, and a reduced 32-hour workweek, the strike has the potential to jolt used automobile prices if production stops,

Additional notable developments include imminent earnings, China's market dynamics, and the trajectory of bitcoin. As the earnings season enters its twilight phase, noteworthy companies like Best Buy (BBY) and Lululemon (LULU) are scheduled to report this week.

The outcome of these earnings could steer the market, particularly given the recent bearish positioning observed by tastytrade customers in Lululemon. In China, Beijing's tax reduction strategy aims to buoy the struggling stock market, which has faced a 4% decline this year. Lastly, bitcoin's performance remains a focal point, with a 10% decline this month and a 1% drop observed in premarket trading.

Lastly, the market's tranquility, gauged by the VIX, remains consistent. The VIX, which closed at 15.68 on Friday, is displaying a 2% premarket uptick. As summer wanes and school routines resume, a surge in trading volume might be on the horizon, potentially translating into increased volatility as September approaches. In these dynamic times, staying aligned with your investing strategies and long-term objectives is a prudent path to navigate.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan

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