Historical data shows that September is one of the worst months for stock market performance. We’re currently observing this seasonal effect, but there are other factors at play.
Overview of the Economy
Economic growth is slowing down around the world, and the U.S. is no exception. The country is still on the right path to recover from the pandemic, but experts don’t expect a period of strong economic growth until 2025.
The current GDP growth projection is at 4.9%, and we’re seeing a slight increase in unemployment numbers at 3.8%. Data shows that job growth is happening at a slower pace, and sectors like transportation and warehousing are losing jobs.
When it comes to consumers, many are feeling the effects of inflation. Recent data shows that the consumer index score dropped from 114 in July to 106 in August, a trend that is likely to continue in September.
Stock Market
The September effect combined with uncertainty surrounding the Fed’s decision regarding interest rates is resulting in a volatile environment. The Dow Jones dropped by 0.3% ahead of the Fed’s announcement.
The Instacart IPO that took place on September 19th is a significant event. Instacart is one of the largest tech companies to go public in the past few years, and its stock price rose by 12% during the first day.
Inflation
Experts believe inflation will keep slowing down. It only increased by 4.3% in August, which is lower than the 4.7% increase recorded in July.
On September 20th, the Federal Open Market Committee opted to maintain the current interest rate at 5.25 to 5.5%. The rate is currently at its highest level in over 20 years.
Deciding against raising the rate further is a positive sign for inflation, but the high interest rate is having several negative consequences:
- Home sales are down as finding an affordable mortgage becomes more challenging.
- High interest rates are hurting corporate earnings. The S&P 500 should only grow by 0.5% for Q3 2023.
- The U.S. banking industry saw its credit rating downgraded from AA to AA- due to the current environment.
Oil and Precious Metals
Oil reached $94 a barrel on September 19th. While the price at the pump remains below $5.02 on average, it’s higher in several states.
The precious metal market has been strong over the past few months and experts believe this trend is here to stay. Gold rose to $1,944 per troy ounce ahead of the Fed’s announcement.
Cryptocurrencies
The crypto space is proving to be particularly volatile. An ongoing legal battle against the SEC is hurting Binance and could set a precedent that would affect other exchanges.
Binance has been reporting exchange volumes down by around 50% since the beginning of the month, and the crypt market has been generally slow and characterized by lower-than-average volatility.
However, Bitcoin prices exceeded $27,000 for the first time this month on September 18th due to an uptick in activity from the Asian market.
Financial Planning Strategies
For consumers, it’s more important than ever to adopt a few smart financial planning strategies:
- The Fed’s position on interest rates makes borrowing costly. Prioritize saving and wait before financing a major purchase like a home or a car.
- High interest rates also mean bond yields are up. Diversifying your portfolio with a few bonds and money market funds can be a smart move.
- Inflation is easing, but it’s still present. Budgeting carefully remains the best way to lessen its impact.
- AI is having an extremely disruptive effect on many industries. It’s creating investment and employment opportunities that are worth exploring.
Benefits of Smart Money Moves
Experts are predicting a slow GDP increase over the next two years, but they also believe that unemployment will go up before conditions improve in 2025.
While inflation is showing signs of slowing down, many goods and services remain expensive, and the cost of borrowing will likely remain high for the foreseeable future.
As a consumer, you need to adopt a solid financial strategy to insulate yourself from this uncertain environment. Building a safety net and diversifying your investments are great places to start.
Resources
Leverage these resources to increase your financial literacy:
- Explore personal finance topics on the ScoredIt blog.
- If you’re thinking about borrowing, use this interest rate calculator to see how the current rate will impact your payments.
- Learning Lab from Greenpath offers free financial education resources.
- Keep up with the latest financial news on CNBC Finance or the Financial Times.
Conclusion
The September economy snapshot is mixed. The Fed deciding to maintain the current interest rate instead of increasing it is a sign that inflation is slowly coming under control, and the rise of the AI industry and successful tech IPOs like Instacart could support stock market performance in the near future.
However, consumers need to remain cautious and take steps to build a strong financial plan to get through these uncertain times.
