Seasonal trend broken? S&P 500 index expected to achieve its first September increase in 5 years

According to the Zhitong Finance and Economics APP, the US stock market is experiencing a steady rise in September, which is typically a weak month. However, after the Federal Reserve announced a significant rate cut, the market reversed this seasonal trend.

Although the S&P 500 index saw a slight decline on Friday, it has been rising for the third consecutive week, resulting in a 1.6% increase in September. According to FactSet data, if this increase is maintained on the last trading day of September, the S&P 500 index will record its first gain in September since 2019.

Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial, stated in a phone interview on Friday, "The expectation of a soft landing is already fully reflected in stock prices." He mentioned that September is usually a poor-performing month, but this "seasonal factor" did not come into play after the significant rate cut by the Federal Reserve.

On September 18, the Federal Reserve announced a half-point cut in the benchmark interest rate, marking the beginning of a new rate-cutting cycle. Federal Reserve Chairman Powell stated that this rate cut is based on the significant easing of US inflation and the need to maintain labor market stability.

The latest data released on Friday showed that the annualized growth rate of the US Personal Consumption Expenditures Price Index (PCE) for August dropped to 2.2%. Following the inflation data release, interest rates in the US bond market fell, bond yields retreated, and expectations in federal funds futures indicated an increased likelihood of another significant rate cut by the Federal Reserve in November.

According to Dow Jones market data, the two-year US Treasury yield fell to 3.562% on Friday, marking the longest continuous four-week decline since December 2020. The ten-year Treasury yield also slipped to 3.751%. Throughout September, US Treasury yields have generally declined, with investors expecting the Federal Reserve to begin cutting rates this month.

Based on data from the CME FedWatch tool, as of Friday, the federal funds futures market indicated a 54.8% probability that the Federal Reserve will cut the benchmark interest rate by another half-point at the November policy meeting, while the probability of a smaller quarter-point cut was 45.2%.

Cyclical Stocks Leading Tech Stocks

Investors will continue to focus on data such as inflation, economic growth, and corporate profits, as these factors are crucial for further stock market gains. Saglimbene stated, "Investors want to see the scope of the rise expand." He also mentioned that the recent strong performance of cyclical stocks is a good example Over the past three months, the materials, industrial, and financial sectors in the S&P 500 Index have outperformed the technology sector, indicating that cyclical stocks are leading the market as the U.S. economy continues to grow. According to FactSet data, the industrial sector of the S&P 500 Index has risen by 10.7% in the past three months, the materials sector has risen by 9.8%, and the financial sector has risen by 10.3%. In contrast, the technology sector only rose by 0.4% during the same period.

This shift in market leadership is particularly evident as the technology sector has surged nearly 29% year-to-date in 2024, driving the S&P 500 Index up by 20.3% since the beginning of the year.

This week, the materials sector of the S&P 500 Index rose by 3.4%, marking the largest weekly gain since December last year. The technology sector only rose by 1.1% this week, while the S&P 500 Index as a whole rose by 0.6% this week.

Saglimbene noted that signs of cooling inflation, ongoing growth in the U.S. economy, and the significant rate cuts by the Federal Reserve in September have brought new momentum for the expectation of a "soft landing." He also pointed out that third-quarter corporate earnings will begin to be released next month, which will be crucial for the market to assess whether the stock market can continue to rise.

The Dow Jones Industrial Average rose by 0.3% on Friday, hitting a new high, while the S&P 500 Index fell by 0.1% and the Nasdaq Composite Index dropped by 0.4%. According to Dow Jones market data, the three major U.S. stock indices have risen for the third consecutive week