US stock market’s fate comes down to the next 14 trading sessions
NEW YORK – The next few weeks will give Wall Street a clear reading on whether this latest stock market rally will continue – or if it’s doomed to get derailed.
Jobs reports, a key inflation reading and the Federal Reserve’s interest rate decision will all hit over the next 14 trading sessions, setting the tone for investors. The events arrive with the stock market seemingly at a crossroads after the S&P 500 Index just posted its weakest monthly gain since March and heads into September, historically its worst month of the year.
At the same time, volatility has vanished, with the Cboe Volatility Index, or VIX, trading above the key 20 level just once since the end of June. The S&P 500 hasn’t suffered a 2 per cent sell-off in 91 sessions, its longest stretch since July 2024. It touched another all-time high at 6,501.58 on Aug. 28, and is up 9.8 per cent for the year after soaring 30 per cent since its April 8 low.
“Investors are assuming correctly to be cautious in September,” said Thomas Lee, head of research at Fundstrat Global Advisors. “The Fed is re-embarking on a dovish cutting cycle after a long pause. This makes it tricky for traders to position.”
The long-time stock-market bull sees the S&P 500 losing 5 per cent to 10 per cent in the fall before rebounding to between 6,800 to 7,000 by year-end.
Mr Lee isn’t alone in his near-term skepticism. Some of Wall Street’s biggest optimists are growing concerned that the eerie calm is sending a contrarian signal in the face of seasonal weakness. The S&P 500 has lost 0.7 per cent on average in September over the past three decades, and it has posted a monthly decline in four of the last five years, according to data compiled by Bloomberg.
The problem is, this kind of tranquility and extreme positioning has historically foreshadowed a spike in turbulence. That’s what happened in February, when the S&P 500 peaked and volatility jumped on worries about the Trump administration’s tariff plans, which caught pro traders off-sides after coming into 2025 betting that volatility would stay low. Traders also shorted the VIX at extreme levels in July 2024, before the unwinding of the yen carry trade upended global markets that August.
The VIX climbed toward 16 on Friday (Aug 29) after touching its lowest levels of 2025, but Wall Street’s chief fear gauge still remains 19 per cent below its one-year average.
Of course, there are fundamental reasons for the S&P 500’s rally. The economy has stayed relatively resilient in the face of Mr Trump’s tariffs, while Corporate America’s profit growth remains strong. That’s left investors the most bullish on US stocks since they peaked in February, with cash levels historically low at 3.9 per cent, according to Bank of America’s latest global fund manager survey.
But here’s the circular problem: As the S&P 500 climbs higher, investors become increasingly concerned that it is overvalued. The index trades at 22 times analysts’ average earnings forecast for the next 12 months. Since 1990, the market was only more expensive at the height of dot-com bubble and the technology euphoria coming out of the depths of the Covid pandemic in 2020.
“We’re buyers of big tech,” said Tatyana Bunich, president and founder of Financial 1 Tax. “But those shares are very pricey right now, so we’re holding some cash on the sidelines and waiting for any decent pullback before we add more to that position.”
Another well-known bull, Ed Yardeni of eponymous firm Yardeni Research, is questioning whether the Fed will even cut rates in September, which would hit the stock market hard, at least temporarily. His reason? Inflation remains a persistent risk.
“I expect this stock rally to stall soon,” Yardeni said. “The market is discounting a lot of happy news, so if CPI is hot and there’s a strong jobs report, traders suddenly may conclude rate cuts aren’t necessarily a done deal, which may lead to a brief sell-off. But stocks will recover once traders realise the Fed can’t cut rates by much because of a good reason: The economy is still strong.” BLOOMBERG