September could be a wild month for markets
NEW YORK (AP) — Investors are bracing themselves for a wild month.
September is packed with events that could derail the stock market's 16 percent gain this year.
There's a report on employment, a debate on attacking Syria, and a federal budget deadline that could become a prelude to another fight over the debt ceiling.
And then there's a crucial meeting of the Federal Reserve. Investors have spent all summer wondering whether the Fed will announce plans to start phasing out its support for the economy at the end of the meeting.
In May, Fed Chairman Ben Bernanke said that the central bank was prepared to cut back its bond-buying program if the economy looked strong enough. Wall Street has been awash with speculation over the Fed's timing ever since. In every big market move this summer, traders and investors thought they saw Bernanke's influence.
September is historically a tough one for the stock market. Since 1945, the Standard & Poor's 500 index has fallen in September nearly six in every 10 times. On average, it has lost 0.6 percent
Here's a look at events that could shake markets this September. In tribute to Bernanke's sway, the events are rated on a scale of 1 Bernanke (No biggie) to 5 Bernankes (Uh-oh).
The U.S. Jobs Report: Sept. 6
Rating: 3 Bernankes.
The government's employment report is always a big event for markets, but this one is special: it's the last major economic report before the Fed's monthly meeting. That's when many in the market think the Fed will decide to ease off its huge bond-purchasing program, which has kept interest rates at historic lows and helped the economy and the stock market. But if the report shows a weaker job market, the Fed may postpone those plans. As a result, some traders say a hiring slowdown could jolt stocks up.
Confused? So are many investors.
U.S. Congress Debates Syria Strike: Sept. 9.
Rating: 2 Bernankes.
Congress officially returns from summer vacation Sept. 9, and Syria will likely be at the top of the agenda. President Barack Obama has asked for Congress to support a military strike against President Bashar Assad's regime for allegedly using chemical weapons in its civil war.
Investors say they're concerned about the consequences of a military strike. A wider conflict would likely drive up oil prices, pinching U.S. consumer spending. And when oil prices soar, stock prices fall.
On August 27, the price of oil climbed above $109 a barrel, its highest level in more than two years, on speculation that a U.S. attack on Syria was imminent. The Dow Jones industrial average fell 170 points, or 1 percent, to 14,776 that day.
The Fed Meeting: Sept. 17-18.
Rating: 3 Bernankes.
Many on Wall Street think this is the meeting in which the Fed agrees to start winding down its $85 billion in monthly bond purchases. Traders had the last few months to prepare for it. So if the Fed acts as expected, the stock market is likely to respond with "a collective yawn," says Sam Stovall, chief equity strategist at S&P Capital IQ.
But what if things don't turn out that way? A deep cut to the Fed's bond-buying program — to $55 billion a month, for example — could roil stock, bond and currency markets. But Bernanke's Fed prides itself on giving markets plenty of notice, so the odds of that happening seem slim.
Germany's Elections: Sept. 22.
Rating: 2 Bernankes.
From late 2009 until last year, worries that a European government would fail to pay its debts often sent the U.S. stock market into a tailspin.
Germany's elections will likely push Europe's debt problems back into the spotlight, if only because of what happens afterward. Chancellor Angela Merkel's party currently leads in polls, so many investors are banking on Merkel getting a third term in office with a stronger government.
The new German government is generally expected to take up sweeping reforms for the 17 countries that use the euro currency. That could easily lead to some public spats between government leaders, especially if Greece runs into trouble again.
As a group, the countries of the eurozone make up the world's second-largest economy. So if things get heated, U.S. investors will take notice, says Mark Luschini, chief investment strategist at Janney Montgomery Scott. "That's likely to cause some volatility," he says.
U.S. Budget Deadlines: Sept. 30.
Rating: 5 Bernankes.
To keep the government running, Congress needs to pass a short-term spending bill before the fiscal year starts Oct. 1. Any problem could lead to a government shutdown. But that's seen as a prologue to the main event -- another debt-ceiling standoff.
Last week, Treasury Secretary Jacob Lew warned that the government would lose the ability to pay all its bills by the middle of October unless lawmakers raise the government's $16.7 trillion borrowing limit ahead of time. John Boehner, the Republican Speaker of the House, said he plans to use the debt ceiling to demand deeper spending cuts and promised "a whale of a fight."
The tough talk has reminded many in the financial markets of the debt-ceiling fight in August 2011, when markets plunged around the world.
"Another standoff could spark a market riot," Luschini says. But, like many investors, he expects Congress to come around at the last minute. Things will turn out all right, eventually.