A hawkish stance from the Federal Reserve, soaring Treasury yields and a looming government shutdown are adding to a cocktail of risks that has spooked investors and clouded the outlook for U.S. equities.
Seasonal factors also look grim, at least for the near term. The S&P 500 entered what has historically been its weakest 10-day stretch of the year on Sept. 18, according to BofA Global Research. The index has historically fallen by 1.66% over the period when performance during the first 10 days of the month is below average, as it has been this year, the bank’s data showed.
Meanwhile, a drawn out government shutdown could aggravate concerns over U.S. government gridlock and send Treasury yields even higher. Early this year, lawmakers waged a protracted battle to raise the debt ceiling. This drew a credit downgrade from ratings agency Fitch, analysts at Societe Generale wrote.
Of course, strategists’ metrics have shown there is plenty of cash on the sidelines to be deployed by investors looking to buy on weakness. Buyers would likely step in if the S&P 500 fell to 4,200, which is about 3% from current levels, said Keith Lerner, co-chief investment officer at Truist. "We anticipate, at least initially, buyers would come in around this vicinity ... to help contain short-term weakness," he said.
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