The S&P 500 stock index is in a fascinating period as market watchers are cautiously optimistic about the coming few weeks. Key developments and underlying trends will determine what happens after the tumultuous September cycle.
For starters, the S&P 500 for the U.S. stock market is an index that tracks stocks from five hundred large companies listed on leading bourses. Therefore, this index has depth and exposure to many of the best-performing stocks. Markets regard it as a valuable indicator for large-cap U.S. equities.
Stocks are generally in a better place than last year at the height of COVID-19 devastation. This year, there have been some unusual events, like the wave decline in gold prices a few months ago. Fortunately, gold prices appear to be achieving a semblance of stability now, good news for hedge investors.
September Was a Rough Time for Stocks
The S&P 500 had its worst outing of the year in September. Notably, the 4.8 percent drop was the most significant since March 2020. Market participants are still wary of the transitory pressures of the inflation rises in mid-2021, and any news of the Delta Variant of COVID-19 still moves markets.
Many had hoped that September would provide ease for an anxious market. Economic data from this period is also uninspiring, with recent jobs numbers falling short of expectations. Additionally, concerns over long-term bond yield data and reports that the Federal Reserve may start reversing its stimulus program for the economy add to the uncertainty.
September has been historically a difficult time for stocks. The past few years have bucked the trend somewhat with some marginal gains. However, this September has confirmed analyst fears and added to a historical trend.
Stocks Entering a Normally Positive Period
In the first week of September, the historical trends once again proved true. The S&P 500 rose by 1.2 percent on the first day of the month, with cyclical stocks leading the way. These are stocks that do well when the general economy is going great. They are usually discretionary purchases, with airline stocks, high-end clothing retailer stocks, and hotel chains being notable examples.
These companies took a beating at the height of COVID-related shutdowns. Most could not have made it without the necessary government bailouts that came their way. Now, they are on the recovery train, with some of these stocks getting back to decent levels. It may take months or even years for the economy to recover fully. Nonetheless, these are good signs.
Nonetheless, the S&P 500 is still up over 15 percent for the year. Tech stocks have been a standout performer in the past couple of years and even broke new records when cyclical stocks were struggling badly. Now, gains in cyclical energy and financial sector stocks could come from rising commodity prices. It is still unclear how they would fare if there is a change in interest rate policy.
Some strategies are still wary of choppiness in equity markets. Any key policy announcements in monetary and fiscal policy will be crucial. Delta certainly dampened optimism in the second and third quarters of 2021. Markets are likely to adjust to its reality or possible dissipation in setting trends for this final quarter.
Conclusion
Wall Street's main indexes should have a better October than what happened in September. The bouts of selling pressure and inflation concerns will hopefully be lesser, setting in motion a recovery.
That said, it is best not to dwell on short-term trends of stock indices. The S & P 500 had a blip, but its overall yearly performance is solid. In the past year, it has recorded multiple all-time highs and a few slumps. This upheaval is typical for all indices, but the long-term trends are more comforting.
All eyes will be on the Fed for the critical monetary policy announcements in the next few weeks. The Fed could consider recent developments or decide to surprise markets with news of an interest rate hike beyond what is expected. Ultimately, one must always keep up to date with events and trends that define S&P 500 movements.
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