What should concern investors going into this typically tough month for markets
August was very good for Wall Street. September may be the opposite. The S & P 500 climbed to a fresh record last month, topping 6,500 for the first time. The benchmark posted its fourth straight winning month, rising nearly 2%. The Dow Jones Industrial Average and Nasdaq Composite also reached all-time highs last month. But Tuesday, the first trading day of September, is shaping up to be a tough one — as investors grapple with a laundry list of worries for the month. 1. Possible Tariff revenue loss The newest concern on Wall Street comes from Washington, after a federal appeals court ruled Friday that most of President Donald Trump’s tariffs are illegal. “The core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution,” the court said . “Tariffs are a core Congressional power.” This is not just a blow to Trump politically. The ruling also raises questions over whether the money already collected from tariffs will have to be returned — potentially worsening the already fragile U.S. fiscal situation. “If this ruling is upheld, refunds of existing tariffs are on the table which could cause a surge in Treasury issuance and yields,” wrote Ed Mills of Raymond James. 2. Bond yields soaring U.S. and abroad The U.S. tariff uncertainty drove Treasury yields higher. The 30-year bond yield spiked to 4.99%, near levels not seen since mid-July. The benchmark 10-year note yield traded nearly 8 basis points higher at 4.3%. Rates abroad are also climbing. Concerns over the United Kingdom’s budget sent the 10-year Gilt yield to its highest level since 1998, according to Deutsche Bank. France’s 10-year yield spiked to 3.6%, touching a level not seen in more than a decade, as the country faces a no-confidence vote. Should yields around the world keep moving higher, they could pressure the stock market, making bond income more attractive and raising the cost of capital for business. “A new wave of sovereign risk is washing over European economies, with the UK and France most vulnerable as they navigate fiscal fragility, political instability and cratering bond market confidence,” wrote Ed Yardeni, president and chief investment strategist with Yardeni Research. 3. Fed drama Wall Street this month also has to contend with the Trump administration’s efforts to oust Lisa Cook from her post as Federal Reserve governor. Cook requested a temporary restraining order to halt Trump from firing her. But a court hearing in Washington, D.C. last week ended without a ruling on the matter . 4. Seasonality and jobs report Investors also have to navigate seasonal headwinds — with a major economic report due out this week. Data from the Stock Trader’s Almanac shows the S & P 500 averages a 0.7% decline in September, making it historically the worst month of the year for the benchmark . Over just the past five years, the S & P 500’s September performance has been worse, averaging a 4.2% decline in that stretch. “2H September is the worst two-week period of the year with an average return of -1.38% looking back from 1928,” traders at Goldman Sachs noted, referring t just the back half of the month. “However, the first half of September is more moderate with smaller chops which is a trend we believe will dictate this month’s early trading due in large part to current positioning.” On top of that, the August U.S. jobs report is set for release thist Friday. Economists polled by Dow Jones expect a gain of 75,000 jobs last month, slightly above the 73,000 gain reported for July. However, the number will have to be in the Goldilocks range of not too hot and not cold for the market to like it. If it’s too strong, it may tamp down expectations for Fed rate cuts. If it’s too weak, it will raise concerns about the state of the U.S. economy.
