Rough start to September…and two catalysts to push stocks higher

VaselineSeptember 7, 2024

0 5 minutes read

Rough start to September…and two catalysts to push stocks higher

August is now behind us and I don’t think anyone is disappointed to put it in the rear view mirror. But what many investors seem to forget is that September can also be a hectic and volatile month.

The truth is that September is the worst seasonal month of the year for the stock market. As you can see in the chart below, the Dow, S&P 500, NASDAQ, and Russell 2000 have averaged declines in September since their inception.

Source: Barron’s

September clearly takes the cake. This is why the financial media likes to call it the “September Faint” or the “September Effect”.

The September effect reached the stock market this year as well. The Dow fell more than 2 percent, the S&P 500 fell about 4 percent, while the NASDAQ fell 5.8 percent and the Russell 2000 fell 5.7 percent.

So, in today’s 360 SquareI’ll explain what’s behind the volatility and why I think the weakness is only temporary. Next, I’ll share why investors should remain bullish for this month. Let’s get into it…

Temporary seasonal means

Estimated fees

Each quarter, small business owners, sole proprietors, and the self-employed are required to pay taxes based on their reported income for that period. This can also include owners or people with significant investment income.

It’s easy to forget this if you’re a W2 worker who has taxes automatically taken out of your paycheck. But we’re talking about a sizeable chunk of people – up to 40% of taxpayers, according to some estimates.

So if you’re one of those people who has to do this every quarter and you’re facing a big tax bill, you may need to sell some stocks in your portfolio to pay your taxes.

Estimated fees for this quarter are due on September 16th, and that is weighing on the stock market a bit. But once the taxes are done and paid, this will no longer be a factor.

Extended summer vacation

I was in New York last week and I can tell you that many people on Wall Street (as well as people in Europe) are still on summer vacation. As a result, trading volume is often light and the “B Team” is left in charge. This leaves the door open for more seasonal shenanigans to come in August.

This explains some of the wilder swings we’re seeing in the market right now, but once again, it’ll be over once the “A Team” returns to the office.

The winning season is over

The second quarter earnings season has come to an end. Now, this earnings season has been excellent. The S&P 500’s earnings growth rate reached 11.3%, marking the highest year-over-year earnings growth rate since the fourth quarter of 2021.

However, this force serves as a “problem” right now, as there are cases where the “tail wags the dog.”

Specific case: NVIDIA Corporation (NVDA).

We reviewed the full earnings report last Friday 360 Squarebut to briefly review:

Second-quarter revenue rose 122% year-over-year to a record $30.0 billion, beating estimates of $25.64 billion.
Second-quarter earnings rose 152% year-over-year to $0.68 per share, compared with estimates of $0.64.
Data center revenue also set a new record, rising 154% year over year to $26.3 billion.

I was pleased with NVIDIA’s results and felt that the company had cleared up the manufacturing issue with its Blackwell chips. However, some investors were reportedly concerned about the company’s margins, which were slightly compressed from the previous quarter. And by that, I mean NVDA’s operating margin was about 62%, compared to 65% in the first quarter.

Let’s be honest though, folks. That’s still a fantastic number that any company would kill to have. But Wall Street looked even more for a “boom” quarter and took profits when stocks didn’t deliver.

NVIDIA is now down more than 18% since its August 28 earnings report. Given that it is the third largest and arguably the most influential company in the S&P 500, when NVDA sneezes, the S&P 500 catches a cold. So that added to some of the weakness in both the S&P 500 and the NASDAQ.

Two catalysts to propel stocks higher

While the market’s weakness has been gut-wrenching, there are two catalysts that should help stocks bounce back in the second half of the month: the Federal Reserve and end-of-quarter showcases.

The Fed will ease in September

Two weeks ago, during the Federal Reserve’s annual meeting in Jackson Hole, Fed Chairman Jerome Powell made it clear that our central bank will cut key interest rates in September.

With inflation cooling, a 0.25% cut in the key interest rate is poised for the Fed’s next Federal Open Market Committee (FOMC) meeting on September 18. However, as the labor market deteriorates further, there is additional pressure on the Fed to taper. even more so this year.

Just yesterday, the Labor Department announced that just 142,000 payroll jobs were created in August, compared to economists’ expectations for 165,000 jobs. But the big news is that June and July jobs were revised down by a cumulative 86,000 jobs.

Markets loved this “bad news” and Treasury yields fell in the wake of it. The 10-year Treasury yield is now around 3.7%, down from around 3.9% at the end of August. That also compares with 4.3% at the end of July and this year’s peak of around 4.7% at the end of April.

Falling Treasury yields are also adding to pressure on the Federal Reserve to cut rates by more than 0.25%. But I still think a 0.25% cut is likely at this point because the Fed doesn’t like to panic. Additionally, we are still likely to see further rate cuts this year, which should help breathe new life into the markets.

Showcases at a quarter

With the end of the third quarter approaching, this will also light up the end-of-quarter showcases.

Like mine Last minute deals Members know that the end-of-quarter showcase occurs when fund managers and institutional investors shore up their portfolios before the end of the quarter. Essentially, they make their clients’ portfolios “pretty” by selling the worst-performing stocks of the quarter and replacing them with the best performers.

That’s what it means fundamentally superior stocks should benefit from persistent institutional buying pressure in the second half of September.

With the stock market likely to begin to regain momentum in a few weeks, the current weakness is a great opportunity to go bargain hunting and pick up stocks fundamentally superior stocks at deep discounts.

If you are not sure where to look, then consider Last minute deals. My Last minute deals The buy list is characterized by an average expected sales growth of 22.8% and an average expected earnings growth of 101.8%, so I suspect that my stock will be at the top of most investors’ buy lists at the end of September . I also take advantage of market sales as I just do recommended a new stock yesterday, with expected triple-digit revenue growth.

To get full access to my latest buying tips, click here to become a member of Last minute deals today.

(Already a Last minute deals subscriber? Click here to log in to the members-only website.)

Sincerely,

Louis Navellier

Editor, 360 Square

The Publisher hereby discloses that, as of the date of this e-mail, the Publisher owns, directly or indirectly, the following securities that are the subject of commentary, analysis, opinions, advice or recommendations in, or are otherwise referred to in, the essay presented above down:

NVIDIA Corporation (NVDA)

VaselineSeptember 7, 2024

0 5 minutes read

Vaseline

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