Investors heaved a sigh of relief as September came to a close. September is historically considered the worst month for the stock market, and September 2023 did its best to live up to this reputation. Concerns about a federal government shutdown, inflation, interest rates, and rising oil prices all contributed to a rather rough month.
US Government Shutdown Averted
A stopgap funding bill was passed at the last minute by the US Congress late on Saturday, with President Biden signing it into law just in time to avoid what would have been the fourth partial federal government shutdown in a decade. This keeps the government funded through November 17, easing concerns that the data available to policymakers to make key rate decisions would be disrupted.
A Keen Eye on Inflation
Inflation in the U.S. appears to be cooling, with data on Friday showing that underlying inflation fell to below 4% for the first time in more than two years. However, rising oil prices and the subsequent increase in gasoline prices remain a concern, given the impact on consumer spending and confidence. Among other factors, this could affect how quickly inflation falls to the Fed’s desired level and influence one last interest rate hike in 2023.
Flash data on Friday also showed that Eurozone inflation fell to 4.3% in September, its lowest level in two years. This fueled expectations that the European Central Bank may have raised rates far enough to address persistent inflation. Christine Lagarde, the ECB president, is due to speak on Wednesday, Oct. 4, and investors will closely watch her comments for indications of what the future might hold for interest rates.
Employment and Job Reports
A number of reports on the state of employment and jobs are due to be released during the week, including the closely watched Nonfarm Payrolls report on Friday, with experts expecting a slowing in the number of jobs added in September compared to August. A stronger-than-expected reading could underscore the Fed’s stance to hold rates higher for longer.
Earning Season For Equity Markets
It was a weak third quarter for stocks, with the S&P 500 falling about 3.6%, the Dow losing 2.6%, and the Nasdaq declining 4.1%. The fourth quarter marks the start of earnings season, with traded companies releasing financial results for the previous quarter. The all-important final quarter of the year will have investors looking out for the impact of surging bond yields on the shares of tech companies, as well as the likely boost to profits from the AI boom.