Schools are back in session. Football season is kicking off. And Wall Street is wringing its hands in worry.
Labor Day ends the stock market’s traditional August vacation season and ushers in September, historically the roughest month for investors.
This September offers plenty of reasons to fret.
Air strikes in Syria? A downshift in policy at the Federal Reserve? Another rancorous debt ceiling debate in Washington?
“We’ve been kinda dodging bullets in this market over the last two or three weeks,” said Bill Greiner, chief investment officer at Mariner Wealth Advisors LLC in Leawood.
The Dow Jones industrial average has been in full retreat since hitting a record high Aug. 2. The blue chip barometer ended the month where it had finished April. Other market indexes have held up better, but stocks have begun to march sideways after a long climb. In fact, August was the stock market’s worst month since May 2012.
Greiner and other analysts think that despite the uncertainties at hand, the economy and stock market will hold up to September’s threats.
“No one of them alone — or in combination — is enough to derail the U.S. economy from its current track,” said Rich Weiss, a senior portfolio manager at American Century Investments in Mountain View, Calif.
In fact, good economic news this week surprised forecasters.
On Thursday, the Commerce Department revised the growth rate of the economy in April, May and June upward to a relatively brisk 2.5 percent. That was much better than the 1.7 percent rate first reported.
Businesses’ credit managers similarly reported better conditions than expected, according to the August survey by the National Association of Credit Management. Stronger sales and more credit applications highlighted what the association called “impressive” numbers.
“Things are getting better,” Bill Dana, Central Bank of Kansas City’s president, said this week. “It’s more of a glass half full than a glass half empty.”
Such talk is one reason Wall Street worries.
It means the Federal Reserve is more likely to cut back on its massive bond buying spree — its third round of “quantitative easing” — that it ratcheted up last September when things looked less hopeful. Stock prices have climbed during the Fed’s heavy bond buying, designed to boost the economy by driving down long-term interest rates.
But the Fed meets Sept. 17-18, and a plan to taper its bond buying is on the agenda.
Taper talk from Fed Chairman Ben Bernanke in May sent a chill through the stock market. It also launched a rise in long-term U.S. interest rates that hasn’t retreated.
As much as the Fed’s potential policy shift worries U.S. markets, it has struck some overseas markets and economies doubly.
Economists explain that the Fed’s bond buying has pumped a lot of money into the global economy, and much of it headed particularly to emerging economies, where growth was stronger and investment returns higher.
India, Turkey, Brazil and others are now struggling as investors pull money out of emerging markets in the face of more attractive interest rates on U.S. securities.
The exodus has been so swift in India that its currency’s value plunged by 8 percent this week to cap a 20 percent drop in its purchasing power since May. The falling rupee means rapid inflation inside India and rising interest rates that hurt its economy.
Weiss, at American Century, said it has made for a “nervous summer” on Wall Street. Bad news about the economy was seen as bad news. But good news also was seen as bad news for its threat to the Fed’s bond buying.
In the real world, a decision from the Fed that the economy doesn’t need so much help would be a “major vote of confidence” in the recovery, Weiss said.
Uncertainty also circles the Fed’s leadership as President Barack Obama is expected to replace Bernanke when his term expires early next year. Favorites include the controversial former Treasury secretary, Larry Summers, and current Fed vice chairwoman Janet Yellen, who is seen as sharing Bernanke’s policy views.
Although the economy’s growth rate has improved, other reports have been mixed. On the disappointing side was Friday’s reported slim growth in personal consumer spending during July.
It was noteworthy because measures of consumer confidence had been improving, the economics team at Wells Fargo Securities said in a report Friday.
“While consumer attitudes have improved, incomes remain constrained,” it said.
And so will the pace of economic recovery. Wells Fargo forecasts less than a 2 percent growth rate in the economy in the second half of this year.
We’ll get more economic news nearly every day next week, starting with Tuesday’s trend on manufacturing activity and ending Friday with the August employment report.
Economists expect to see 180,000 more jobs but no improvement in the 7.4 percent unemployment rate, according to Bloomberg News.
Consumers, economists and investors also will be watching Syria, or more specifically what action the United States will take after reports of chemical weapons use there.
Already, Syria’s impact includes a jump in oil prices though the country isn’t an oil exporter. The U.S. economy can absorb that but not a wider Mideast confrontation.
Greiner at Mariner Wealth said eyes also will be trained on Germany’s elections in late September. Any signs that Chancellor Angela Merkel faces trouble would worry markets.
September also probably will include another Washington debate over the U.S. debt ceiling with still uncertain results. Uncle Sam is set to run out of borrowing capacity in mid-October.
Griener, mindful of the August 2011 debt ceiling debacle, expects this debate to add to the market’s mood swings but be resolved without a major incident for the economy.
September also is the last month that states and the federal government have to ready the health care exchanges that are supposed to open Oct. 1 under the Affordable Care Act. Some economists also worry whether the law is slowing employers’ hiring decisions, turning more work into part-time jobs and adding costs to the economy.
The thing to keep in mind is that September will come to an end. October historically can be rough, though it often has been the month when a struggling market found firmer footing to start another climb.