Ottawa, September 10 - September marks the beginning of a new school year, a time of fresh starts and new routines. However, in the financial world, it signals the start of one of the market's historically worst months. With the first week of September past us, the markets saw the worst week of the year. Specifically, the NASDAQ plunged more than 2.5%. Furthermore, the SAP 500 fell around 1.7%, losing $2.2 trillion in market cap. This sets the Nasdaq and S&P 500 on a pace for the worst September start in decades.

Recent economic data can explain the bearish market. The latest jobs report revealed that the U.S. added fewer jobs than anticipated, raising concerns about the Federal Reserve’s stance on interest rates. Despite hopes for an economic rebound, the weaker-than-expected job growth has done little to alleviate fears that the Federal Reserve might be lagging in its response to economic conditions. As a result, market sentiment has taken a hit, contributing to the sharp decline in stock indices.

Adding to the complexity, investor sentiment has been influenced by a mix of global factors. Geopolitical tensions, fluctuating commodity prices, and evolving trade policies are creating additional layers of uncertainty. These global factors, combined with domestic economic indicators, contribute to the overall market volatility. As investors navigate through these challenges, they are faced with difficult decisions regarding asset allocation and risk management, further impacting market performance.

However, the first week of September wasn’t all negative. The market saw a steady decline in inflationary pressures coupled with ongoing signs of a cooling Canadian economy, prompting the Bank of Canada (BoC) to make its third consecutive interest rate cut this week. It’s widely expected that the U.S. Federal Reserve will initiate its first rate cut at its next meeting later this month. According to the CME FedWatch, the majority of traders (69.5%) believe there will be a cut of 25 basis points in September, and 32% believe a 50-basis point cut is possible.

Looking ahead, while the stock market faces short-term volatility, the rate cuts could help balance out the effects of previous rate hikes. If these adjustments lead to a more stable economic environment, they may pave the way for a period of more sustainable growth in the future. In summary, while September has started with considerable turbulence for the stock market, the recent policy moves and economic indicators provide a nuanced picture. Investors will be closely watching upcoming developments, including further economic data and Federal Reserve decisions.