September (AKA Rektember) Is Once Again A Tough Month For Stocks AND Bitcoin

The S&P 500 dropped sharply last week on worries about a slowing economy. September (AKA Rektember) Is Once Again A Tough Month For Stocks AND Bitcoin

September is living up to its reputation as a tough month for stocks AND Bitcoin.

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The S&P 500 fell 4.2% last week on concerns about the health of the U.S. economy. Friday’s monthly jobs report showed the labor market added fewer jobs than expected. Tuesday’s weak manufacturing data led stocks to their worst day since early August.

Going back to 1928, the S&P 500 has declined an average 1.2% in September, the weakest month of the year for stocks. The index ended lower 56% of the time over that stretch, according to Dow Jones Market Data.

In the coming days, investors will parse Wednesday’s inflation report to see whether price pressures are continuing to ease and whether big tech stocks, such as Nvidia, can find their footing after a recent slide.

For now, many analysts and portfolio managers are grappling with the less-optimistic tone that has taken hold following a roaring rally in the first half of 2024.

“We were already tensed up [ahead of the jobs report], and now it seems like economic data is not moving in the right direction,” said Callie Cox, chief market strategist at Ritholtz Wealth Management.

The Federal Reserve is widely expected to cut interest rates at the conclusion of its Sept. 18 meeting. The only question is whether it takes its typical approach of trimming rates by a quarter-percentage point or opts to be more aggressive with a half-point cut.

Market watchers such as Cox who were hoping for a glimmer of clarity didn’t find it in Friday’s jobs report. (While fewer-than-expected jobs were created in August, growth was stronger than the previous month and the unemployment rate edged down.)

Some investors are calling for a bigger rate cut to revive the labor market; others fear such a move would send the wrong message to financial markets and spark a deeper downturn.

In addition to the uncertainty over the Fed’s plans, markets are expected to remain volatile heading into the November election. October is typically the weakest month for stocks during election years, with the S&P 500 down 1.4% on an average going back to 1980.

The S&P 500 is still up 13% this year—but sentiment began to shift a month ago when July’s weaker-than-expected jobs report raised questions about whether the economy had begun to falter and the Fed had waited too long to cut interest rates.

Then the unwinding of some of Wall Street’s most popular trades intensified Aug. 5, sending the S&P 500 to its worst day in almost two years.

The tumble has reordered the market’s winners and losers. Some of the shine has come off Nvidia and other stocks riding the frenzy over artificial intelligence. Nvidia’s stock fell 14% last week, erasing $405.7 billion in market value, the largest for any company on record.

Investors, meanwhile, have rotated into defensive stocks. Of the S&P 500’s 11 sectors, only consumer staples and utilities are up this month.

If the S&P 500 ultimately finishes the month in the red, it would be its fifth consecutive September with a decline.

To what degree the trend, dubbed the “September effect,” moves markets is unclear. One popular theory suggests that traders returning from vacation are selling their winners and harvesting tax losses, which can amplify market moves, said Jay Woods, chief global strategist at Freedom Capital Markets.

“September kicked us in the teeth on day one,” Woods said. “Now, we’ll have to see if we can recover.”

Despite the market’s recent slide, it still looks expensive by some measures. Companies in the S&P 500 are trading at 21 times their projected earnings over the next 12 months, above their 10-year average multiple of 18, according to FactSet.

Treasury yields fell after the jobs report, with the benchmark 10-year Treasury yield closing at 3.710%, its lowest level of the year. Bond yields fall as prices rise, and investors tend to flock to the safety of U.S. Treasurys during periods of market upheaval.

“The question is how much does the Fed need to react to the idea of a slowing labor market as opposed to a shrinking labor market,” said Steve Sosnick, chief strategist at Interactive Brokers.

BTC Price Losses Mimic A Standard “Rektember”

The words “Rektember” and “Uptober” are commonly used in crypto, as digital asset prices often “rekt” in September and “get some relief in October”.

At the beginning of September, Bitcoin hit a two-week low, shedding more than 2% at the beginning of the month. However, analysts still believe in a potential upside for the digital asset.

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Despite its short-term dips, financial adviser Suze Orman believes everyone should own Bitcoin and that the next generation of investors could influence the future of crypto.

In a CNBC interview, Orman said that as younger people make more money, BTC will be one of their investments of choice, and that will cause the asset’s price to go up.

Bitcoin Dominates 2024 ETF Launches

Despite the outflows, crypto dominated the ETF space compared to the 400 new ETFs launched in 2024. Data from The ETF Store show that the four biggest launches in 2024 are all spot Bitcoin ETFs.

This includes BlackRock’s iShares Bitcoin Trust, Fidelity’s Wise Origin Bitcoin Fund, the ARK 21Shares Bitcoin ETF and Bitwise’s Bitcoin ETF Trust.

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The top ETF launches by inflows are Bitcoin-based ETFs.

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Arthur Hayes Predicts Bitcoin Rally After Closing Short Position

Bitcoin could start its rally next week on a potential liquidity injection in the world’s largest economy.

Arthur Hayes has closed his Bitcoin short position following initial concerns about a deep correction over the weekend.

On Sept. 6, Hayes, the former CEO of the BitMEX cryptocurrency exchange, warned that Bitcoin could correct below the $50,000 psychological mark this weekend as he opened a short position to capitalize on the downside.

Easing investor concerns, Hayes announced the closure of his short Bitcoin position, expecting a potential Bitcoin rally as soon as next week, he wrote in a Sept. 8 X post:

“Closed my $BTC short, made 3% profit, enough to cover my food and bar tab for KBW. With Bad Gurl Yellen watching mrkts and releasing a weekend statement, if stuff continues to puke next week $BTC *MIGHT* rise anticipating more $ liq.”

According to Hayes, Bitcoin’s price may surge as early as next week, driven by increased United States dollar liquidity from the Federal Reserve. The current weakness in the economy and financial markets could prompt this action.

The expectation of more liquidity injections from the world’s largest economy could significantly bolster crypto investor sentiment and Bitcoin price action.

More Downside Action In Traditional Markets Could Indeed Invite A Liquidity Injection By The Fed, Hayes Wrote In A Sept. 7 X Post:

“Bad Gurl Yellen is watching, if markets go down more she will definitely pump up the jam by printing more money.”

The M2 money supply, which estimates all cash and short-term bank deposits across the US, could be the key to the next Bitcoin rally, according to Jamie Coutts, chief crypto analyst at Real Vision, who wrote in a May 16 X post:

“This is due to a high correlation with $BTC bull cycles. Of the big 3 I track in my Bitcoin/Liquidity framework, Global M2 appears to capture the most of the moves.”

However, the rate of change in the money supply is more important than the nominal value, as “Bitcoin usually moves with shifts in M2 momentum,” added Coutts.

At the beginning of May, the M2 money supply turned positive year-over-year for the first time since November 2023, signaling that investors could soon start looking for hedges against inflation, such as Bitcoin.

Bitcoin’s September correction in line with bull halving cycle: Analyst

Investor sentiment took a hit this week after fears of a sub $50,000 Bitcoin correction crashed the BTC market sentiment to “extreme fear.”

Despite widespread concerns, Bitcoin’s September downside remains in line with previous Bitcoin halving cycles, wrote popular analyst Rekt Capital in a Sept. 6 X post:

September (AKA Rektember) Is Once Again A Tough Month For Stocks AND Bitcoin

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