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Imagine gathering nearly everything that has rattled investors’ nerves over the past four years: the European debt crisis, fights over the U.S. government’s budget and moves by the Federal Reserve. Now imagine all of them crammed into one month. That month? September. Each item on the calendar could cause big swings in daily trading. September has often been a cruel month for the stock market. Since 1945, the Standard & Poor’s 500 index has slumped nearly six out of every 10 Septembers, with an average loss of 0.6 percent.
SEPT. 18: Fed meeting
First up, it’s the Fed meeting that everybody on Wall Street spent the summer talking about. Conventional wisdom says that the Fed will announce plans to trim its monthly purchases of bonds from $85 billion to around $75 billion. It would be the Fed’s first step toward winding down the $3 trillion bond-buying program launched during the financial crisis.
There’s trepidation about the move — known as “tapering” — because the Fed’s efforts have held down borrowing rates, a boon to the once-devastated housing market. The danger is that the Fed scales back much more than expected, said Jason Pride, director of investment strategy at the money management firm Glenmede in Philadelphia. “Markets will react as if the Fed is slamming on the breaks,” he said.
Barring any big surprises, however, investors will likely take the Fed’s next move in stride, said Sam Stovall, the chief equity strategist at S&P Capital IQ.
SEPT. 22: Germany
Remember the European debt crisis ? From late 2009 until last year, worries about Greece, Spain or another of the continent’s troubled economies would flare up and send the U.S. stock market into a tailspin.
This year has been different. France and Germany helped tug the eurozone out of an 18-month recession this spring. But Germany’s elections will likely push Europe back into the spotlight, if only because of what happens afterward. Analysts expect that the new German government will take up long-awaited reforms for the eurozone, the 17 countries that use the euro currency. That could lead to some public spats, especially if Greece’s struggles to pay its debts again.
SEPT 30: U.S. budget
The biggest obstacle is at the end of the month. When Congress return from its summer break on Sept. 9, questions about Syria may top the agenda. But lawmakers also face two deadlines tied to the federal budget.
To keep the government running, Congress needs to pass a short-term spending bill before the fiscal year starts Oct. 1. And then there’s the government’s $16.7 trillion borrowing limit. Treasury Secretary Jacob Lew warned that, unless it’s raised soon, the government would lose the ability to pay all its bills by the middle of October.
John Boehner, the Republican speaker of the House, said Aug. 26 that he plans to use the debt ceiling to demand deeper spending cuts. The Obama administration said it won’t negotiate over the debt limit. The tough talk has reminded many in the financial markets of the debt-ceiling fight in 2011. That fight led the rating agency Standard & Poor’s to strip the U.S. of its top, AAA credit rating. Stock markets slumped and the S&P 500 index plunged 6 percent in one day, its steepest daily drop since the 2008 financial crisis.
Among investors, there’s a widely shared view that any budget squabbles could get rough but not as bad as back then. “We think cooler heads will generally prevail,” Pride said. Still, he said a drawn-out brawl could become “the largest speed bump for this year’s market rally.”
The fight is likely to follow the same plotline as earlier ones, investors say. A scary standoff ends with a last-minute agreement. And then, they hope, the market will rally.