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“But I do think that we’re going to do all that we can at the Federal Reserve to avoid deep, deep pain. And I think there are some scenarios where that’s likely to happen.” – Raphael Bostic

Morning stock market summary

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You know it’s bad out there when a Fed official ‘thinks’ that the Fed will do all it can do to avoid ‘deep, deep pain’.  Early on in the tightening cycle, Fed Chair Powell said that the Fed’s path to higher rates could result in a ‘softish landing’ for the economy.  A few weeks later, he noted that the policy could be accompanied by ‘some pain’.  Last week, the Fed chair told reporters that no one knows if this process will result in a recession.  Over the weekend, it wasn’t the Fed chair speaking, but Atlanta Fed President Raphael Bostic had the comments above in an interview on ‘Face the Nation’.  In the span of five months, Fed officials have gone from describing the impact of tighter policy on the US economy as a softish landing to short of ‘deep, deep pain’.

If there’s anything positive to say this morning, at least September has only a week left.  Heading into the last trading week of the month, the S&P 500 has already shed 6.6% which ranks as one of the worst MTD performances heading into the last week of the month in the post-WWII period.  The table below lists each year where the S&P 500 was down over 5% on the month heading into the last week of September along with how the index performed in the final week of the month.

In the 12 prior months where the S&P 500 was down over 5%, the final week of the month experienced a median decline of 0.44% with positive returns just 42% of the time.  That’s hardly anything to get excited about, but it is also not much worse than the average performance for the final week of the month in all years since WWII (-0.34%). One thing you can probably count on is volatility. To close out the month.  In 7 of the 11 prior years show, the S&P 500 was up or down at least 1% in the final week of the month.  The most extreme downside move was 2.2% in 2002 while the most positive upside move was 7.8% in 2001.

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