The US stock market is closely watching the upcoming monthly non-farm payrolls report due on September 5th, with expectations that the data will be a key short-term catalyst for market sentiment. Coupled with the release of inflation data, the Federal Reserve's interest rate decision, and the arrival of "Triple Witching Day," the confluence of multiple events could trigger market volatility. Currently, although the S&P 500 is at a historical high, elevated valuations, concentrated positions, and a seasonally weak trend have some strategists concerned about the risk of a market correction.
According to a Bloomberg report, the US stock market will face a series of important data and policy releases over the next 14 trading days, including the jobs report, key inflation data, and the latest Federal Reserve interest rate decision, which will set the tone for subsequent market trading.
Meanwhile, the US stock market "seems to be at a crossroads." Market data shows that current US stock volatility has calmed down, with the CBOE Volatility Index (VIX) breaking the key 20 level only once since late June. The S&P 500 has gone 91 consecutive trading days without a single-day drop exceeding 2%. The index hit a record high of 6501.58 points on August 28th, surging 30% since its low on April 8th and gaining 9.8% year-to-date.
Bloomberg described the current situation as an "eerie calm" in its report. It pointed out that some of Wall Street's most optimistic individuals are increasingly worried that the market is sending an anomalous signal. Data compiled by Bloomberg shows that over the past 30 years, the S&P 500 has fallen an average of 0.7% in September, and it has declined in four of the past five years, showing seasonal weakness.
The market is highly focused on the upcoming monthly jobs report, expected to be a catalyst for market sentiment. Surveys from both Bloomberg and Reuters show respondents expect around 75,000 new non-farm payroll jobs. The previous July jobs report showed the US added 73,000 non-farm payroll jobs, which was widely considered weak. Additionally, the US Bureau of Labor Statistics downwardly revised the non-farm payroll figures for May and June by nearly 260,000, drawing market attention.
Jack Janasiewicz, Chief Portfolio Strategist at Natixis Investment Managers Solutions, said the August jobs report due next week could spark concerns about an economic slowdown, but it might also lead markets to expect more aggressive interest rate cuts from the Fed. Janasiewicz told Reuters in an interview: "Lower rates could offset a slightly slowing labor market, and that could set the stage for the economy and the stock market."
Alex Grassino, Global Chief Economist and Head of Macro Strategy at Manulife Investment Management, expects that various data points in the jobs report, such as the unemployment rate and hourly wages, "will largely tell the same story, that the US labor market has cooled."
Following closely after the monthly jobs report will be the US Consumer Price Index (CPI) report on September 11th, which is linked to inflation concerns. On September 17th, the Federal Reserve will announce its latest interest rate policy decision.
Furthermore, the US stock market will also face "Triple Witching Day" on September 19th, when index futures contracts, index options, and stock options all expire simultaneously. Bloomberg noted this will increase market volatility.
Currently, the US stock market is at high levels. Citing market data, The Wall Street Journal pointed out that as of the close on August 28th, the S&P 500's price-to-sales ratio reached 3.23 times, a record high. Although the price-to-earnings ratio is not at its historical peak, it remains at extreme historical levels. The S&P 500's forward P/E (next 12 months) is 22.5 times, far exceeding the average of 16.8 times since 2000.
On the other hand, the market is highly concentrated in large companies. Data from Morningstar shows that as of the end of July, the top 10 companies by market capitalization in the S&P 500 accounted for 39.5% of the index's total market value, a record high. Among them, nine companies have a market capitalization exceeding $1 trillion.
"That, in and of itself, I'm less worried about. The real issue is what happens if something changes," said Steve Sosnick, Chief Strategist at Interactive Brokers. He stated that extremely high valuations and extremely crowded trades undoubtedly increase the possibility of the market experiencing a sustained downturn. "If everybody is buying the same stocks, when the stocks go down, where is the marginal buyer going to come from?"
