September is historically challenging for the market, but stocks could start the month on an upswing after what looks to be the best August for the S&P 500 in 36 years.
The week ahead will be busy with Fed speakers and economic reports, including the important August employment count Friday. Fed Vice Chairman Richard Clarida speaks at 9 a.m. ET Monday on monetary policy. He is is one of several officials, who are expected to reiterate Chairman Jerome Powell's Jackson Hole message that the Fed would be willing to let inflation run hot temporarily to help the economy and job market.
The low volume days of late summer should be a hallmark of the week ahead, but there could also be window dressing trades around the month's end, as investors rebalance holdings.
On Monday, there could be some excitement around two of the market's favorite stocks. Apple begins trading after a 4-for-1 split. Tesla is also trading on a split-adjusted basis starting Monday, after it split its stock 5-for-1. Apple's split changes its weight in the Dow, so the index is being adjusted and there will be new names in the index Monday as some old ones leave. ExxonMobil, Pfizer and Raytheon will be replaced by Salesforce.com, Amgen and Honeywell.
Apple has been the most influential stock in the Dow, but its split will change that. In August, it contributed 24% of the Dow's 8.4% gain. The Dow ended Friday at 28,653, a 2.6% gain for the week. The S&P 500 was up 3.2% for the week, ending at 3,508.
"I think we're still going to be basking in the the glow of an accommodative Fed, combined with the increased accessibility of Apple's share price to retail investors," said Sam Stovall, chief investment strategist at CFRA. Stovall said that after its last split in 2014, Apple gained 36% over the next year, but after its 2000 split as the tech bubble burst, it lost 60%. Apple has risen more than 30% since announcing its stock split on July 30.
The S&P 500 was on track for a 7.2% gain in August, its best performance for the month since 1984 if it holds that level through Monday. The S&P recovered and surpassed its all time high during the month and on Friday closed above the psychological 3,500 level.
The S&P 500 has on average lost 0.5% in September, its worst month of the year going back to World War II, Stovall said. When the S&P 500 has gained more than 5% in August, September gained an average 1.4% and was positive in four of the seven years also back to the 1940s, Stovall said.
Economists are slightly more optimistic about the economic data in the third quarter, but the job market has been an area of concern with unemployment claims still running around 1 million a week. According to Refinitiv, economists expect 1.4 million jobs were created in August, down from 1.76 million in July. The unemployment rate is expected to fall to 9.8% from 10.2%.
"I'm assuming we just continue the momentum we saw in the prior month," said Aneta Markowska, Jefferies chief economist. Markowska said the monthly number has been difficult to forecast because the lack of correlation with unemployment claims, typically a strong barometer for monthly payrolls data but not as much since the pandemic.
"What we've seen really in the last two to three months is a sharp snapback in the hiring in the sectors that were most depressed in Covid. You have restaurant workers, leisure workers coming back," Markowska said. "At the same time, you're seeing a much smaller wave of layoffs in other industries. There was a second order knock-on affect, as a result of profit weakness and companies trying to cut costs as a result of that."
Michael Schumacher, head of rate strategy at Wells Fargo, said there's been a debate in the market for the last several weeks about whether jobs gains are beginning to flatline.
"It strikes me that if you get a better-than-expected number that probably sends risk assets flying, but a somewhat worse-than-expected number would have less impact," he said.
Schumacher said the market may pay some attention to so far floundering efforts in Washington for a new stimulus package. But he added the market has been ignoring the issue for now, as Congress appears to be getting further apart.
"We are worried about the impact on these small businesses if there's no bridge for the next six months," he said.
After Powell spoke at the Jackson Hole symposium Thursday, Treasury yields moved in a wide range. The 10-year note was as low as 0.65% and as high as 0.78% Friday, before settling in at about 0.74% in afternoon trading Friday.
Powell said the Fed would be willing to let inflation rise a bit above 2% for awhile, and that it would now target an average without moving to tighten policy.
"The market reaction to Powell was a little confusing. I suspect the Fed did not want to see this back-up in nominal yields and I suspect they'll push against it," said Markowska.
Fed watchers said the message from Powell was that the Fed will likely keep rates lower for a longer period. Bond strategists said the market was responding to the idea of higher inflation, and rates were rising, particularly at the long end of the curve.
9:00 a.m. Fed Vice Chairman Richard Clarida
9:45 a.m. Chicago PMI
10:30 a.m. Atlanta Fed President Raphael Bostic
Earnings: H&R Block
9:45 a.m. Manufacturing PMI
10:00 a.m. ISM Manufacturing
10:00 a.m. Construction spending
8:15 a.m. ADP
10:00 a.m. Factory orders
10:00 a.m. New York Fed President John Williams
12:00 p.m. Cleveland Fed President Loretta Mester
2:00 p.m. Beige book
7:30 a.m. Challenger layoffs
8:30 a.m. Productivity and costs
8:30 a.m. Initial claims
8:30 a.m. Trade balance
9:45 a.m. Markit Services PMI
10:00 a.m. ISM nonmanufacturing
12:00 p.m. Chicago Fed President Charles Evans
8:30 a.m. Nonfarm payrolls report