"The chill" has arrived! How will the U.S. stock market perform this year? Let's see in the next two months!

After experiencing the worst day in August (since 2022) on the S&P 500 Index (SPX), Wall Street concluded one of the most turbulent trading months of the year, but the situation may become even more complicated.

The index recovered all losses in just three weeks and is once again approaching historical highs. In July, the S&P 500 Index broke through 5660 points, now just a step away from this milestone. However, the next month will be more challenging for the US stock market.

Stephen Suttmeier, technical strategist at Bank of America Securities, pointed out that historically, September is usually the weakest month for US stocks, with an average decline of 1.2%. In addition, investors will also face the two-day policy meeting of the Federal Reserve on September 17th and 18th. The market generally expects a rate cut by the Federal Reserve, but the question is the extent of the rate cut.

Jay Woods, Chief Global Strategist at Freedom Capital Markets, said, "There will be a lot of negative news in the coming weeks, now that we have passed the earnings season, these news will be more closely watched than ever before."

Ahead of the Federal Reserve's interest rate meeting, investors will have to carefully study the upcoming economic data. This week, the latest non-farm payroll data will be released in the US, followed by inflation data next week, which may reveal more clues about the Federal Reserve's future actions and largely influence investors' expectations for rate cuts for the rest of the year.

"If there are any signs in the US labor market or inflation data that investors will have to reassess their expectations for rate cuts for the rest of the year, this could harm the stock market."

According to the FedWatch tool from the Chicago Mercantile Exchange Group, traders expect the federal funds rate to drop by 1 percentage point in 2024. Some observers say that considering some recent data showing the US economy continues to remain strong, this expectation is too dovish.

The Atlanta Fed's GDPNow model expects real GDP growth of 2.5% in the third quarter of 2024, higher than the 2% on August 26. Sam Stovall of CFRA said, "I think the expectation of the Federal Reserve cutting rates by 100 basis points within four months is a bit excessive. The Federal Reserve has been saying that we don't want to reignite the flames of inflation, so I think the Federal Reserve will cut rates in September and then monitor the data to decide on the next steps."

Stovall added, "If the data continues to be stronger than expected, we will remove the expectation of a rate cut by the Federal Reserve in November. This is an uncertain situation because the Federal Reserve still relies on data."

The August non-farm payroll report to be released this week is expected to be a driving factor in the market trend, as the disappointing softness in July's non-farm data raised concerns about economic growth slowing down and led to the sell-off on August 5th Wall Street expects this report to be even stronger. FactSet data shows that economists expect the U.S. economy to add 160,000 jobs in August, up from 114,000 in July. The general expectation is that the unemployment rate should drop from 4.3% to 4.2%.

FactSet data also shows that the market expects the year-on-year growth rate of U.S. CPI data in August to drop from 2.9% to 2.6%, while the year-on-year growth rate of PPI data is expected to drop from 2.2% to 1.7%.

Some market bulls expect that as long as the S&P 500 can smoothly pass through the next two months (including the Federal Reserve meeting and the impact of the November presidential election), the index still has room to rise this year.

Suttmeier stated that he is focusing on key technical levels in the U.S. stock market, as the S&P 500 index has once again touched its previous high. If the index can hold above the key support level of 5,560 points, then the S&P 500 index is expected to rise to 6,000 points. However, in the short term, many believe that funds will continue to flow from tech stocks to this year's market laggards. Last week's situation with NVIDIA proved this, as its earnings report had a muted response and did not drag down the market as investors feared.

Of course, long-term investors may want to continue holding large-cap tech stocks, which may rebound by the end of the year. Stovall said:

"I still believe that there is still some upside potential in the market from now until the end of the year, but I think we must first get through this difficult period."