Be careful! September has a history of being Investing.com’s worst month of the year

Yardeni Research analysts see a positive trajectory for the next two months, despite the historical trend of September being a challenging month for stocks.

The research firm anticipates that expected monetary easing by the Federal Reserve, starting with a 25 basis point cut in the federal funds rate on September 18, will support the market.

Moreover, the Federal Open Market Committee (FOMC) is due to release its Summary of Economic Projections on the same date, which is widely expected to signal further interest rate cuts in the coming months.

The S&P 500 has already posted a significant year-to-date gain of 18.4%, which may reflect investor optimism about the good news ahead. Yardeni Research also noted that while the market tends to prefer political deadlock, historically stocks have performed well regardless of the ruling party.

Upcoming political events on November 5 are too early to affect current market expectations, according to analysts.

Geopolitical risks remain a concern, especially with the situation unfolding since Russia’s invasion of Ukraine on February 24, 2022. However, low oil prices and record gains in inventories point to resilience in the face of these risks.

Domestically, the US economy continues to grow and inflation is approaching the Fed’s 2% target. Analysts have strong expectations for S&P 500 operating earnings per share for the current year and the next two years, with S&P 500 forward earnings hitting an all-time high.

Despite a valuation multiple for the S&P 500 that looks slightly stretched at 21.1, Yardeni Research suggests that better-than-expected economic indicators could lead to fewer rate cuts over the next 12 months, potentially impacting the bond market more than the stock market.

“We’re hard pressed to find what could go wrong in September. So the path of least resistance will likely continue to drive stock prices higher. We still expect a year-end rally to 5800 for the S&P 500, which may already be underway,” the analysts wrote in a research note on Monday.

The firm also predicts a rate hike between 4.00% and 4.25% in the coming weeks.