Following a lively rally from May to July, the major U.S. equity indices have hit a bumpy road, leaving investors in a whirlwind. Stocks took a nosedive after complications in the Japanese “Yen Carry” trade emerged. Subsequently, tech stocks were jettisoned following AI leader Nvidia’s report of its first margin contraction in ages. However, stocks have since seen a resurgence after Nvidia CEO Jensen Huang reassured investors about the steady demand. Meanwhile, Oracle CEO Larry Ellison supported this sentiment, making headlines by mentioning that both him and Tesla CEO Elon Musk urged Huang to accept their money for more AI GPUs. With the market still in turmoil, what lies ahead for stock movements?
September Seasonality and its Bearish Impact
According to Goldman Sachs research, the latter part of September has historically been the worst period since 1950, with ten out of the last eleven days of the month experiencing negative returns.
Image Source: Goldman Sachs
Federal Reserve (FOMC) Meeting on the Horizon
On Wednesday, the FOMC will announce its interest-rate decision at 2:00 pm EST, followed by a press conference by Fed Chair Jerome Powell at 2:30 pm. Powell confirmed that the Federal Reserve will implement the first interest rate cut since 2020 due to decreasing inflation and signs of a slowing U.S. job market. However, uncertainty lingers about the extent of the interest rate reduction, with expectations shifting towards a ~60% probability of a 50-bps cut. Senator Elizabeth Warren even pushes for a 0.75% rate cut, a scenario perceived as highly improbable. Regardless of the rate cut magnitude, investors could perceive the announcement as a “Sell the news” occurence.
Triple-Witching Expiration and Short-Term Volatility
Triple-witching, the simultaneous expiry of stock options, stock index futures, and stock index options, is set to occur this Friday, September 20th. This phenomenon, happening four times a year, often triggers short-term volatility as traders and investors are compelled to act on expiring positions.
Following a strong week of stock gains, investors should now brace themselves for potential near-term turbulence. As poor seasonality, the impending interest rate decision, and the triple-witching expiration approach, uncertainty in the markets looms.
