The S&P 500 was steady on Wednesday, with the average still flat for the month of September, as investors reassess the economic growth outlook following a smooth ride in the market so far this year.
The Dow Jones Industrial Average fell about 25 points. The S&P 500 traded around the flat line. The technology-heavy Nasdaq Composite fell 0.4% after closing at a record on Tuesday.
Many investors are bracing for volatility in September, one of the seasonally weakest months of the year. Price swings could make a comeback, especially with the S&P 500 up more than 20% this year without a single 5% pullback.
“We see a bumpy September-October as the final stages of a mid-cycle transition play out,” Morgan Stanley chief cross-asset strategist Andrew Sheets said in a note. “The next two months carry an outsized risk to growth, policy and the legislative agenda.”
The S&P 500 is down 0.1% this month. The Dow is down 0.6% and the Nasdaq is up 0.5% in September.
One of the catalysts for a sell-off could be the Federal Reserve and the potential for it to pull back an unprecedented monetary stimulus to support the economy throughout the pandemic. Fed Chairman Jerome Powell has indicated that the central bank is likely to begin withdrawing some of its easy-money policies before year-end, though he still sees interest rate hikes in the distance.
“The summer rally to a new S&P high, with potential headwinds like rising rates on the horizon, has left investors debating whether US equities can make meaningful new gains the rest of this year and into next year. Equities are likely to have a pullback at some point, likely driven by another reset in real yields higher, but other tailwinds should drive the S&P 500 to a new high by year end,” UBS told clients on Wednesday as it raised its S&P 500 price target for the end of the year to 4,650 and for 2022 to 4,850.
Still, the outlook for the liftoff is clouded by the coronavirus delta variant and the latest jobs report, which showed a big disappointment.
On Wednesday, the Labor Department released the Job Openings and Labor Turnover Survey, which showed job openings rose to a record 10.9 million in July.
Meanwhile, the Federal Reserve is set to publish its periodic “Beige Book” survey of activity across its 12 districts.
The S&P 500 fell 0.3% on Tuesday in relatively thin trading following the Labor Day weekend. The blue-chip Dow dropped 260 points, weighed down by 3M and Honeywell, while the tech-heavy Nasdaq Composite rose less than 0.1% to eke out a record close.
