The market is in risk-off mode and probably on a path to finish September with a loss. “What’s past is prologue,” as the bard wrote.

September is the only month that shows a stock market decline, on average, over the past 100 years. Ironically, September is “Pain Awareness Month” (although physical and not investment pain is the proclamation’s purview).

The Federal Reserve on Wednesday signaled higher-for-longer, a federal government shutdown is a distinct possibility, and rising bond yields have been pressuring equities. Tech stocks, in particular, have been slumping as it dawns on traders that the artificial intelligence (AI) boom has gotten overbought.

Seasonality is making these headwinds worse. One explanation for the so-called “September effect” is that traders return from their summer vacations to see that many of the problems they thought had been only temporary will persist for the duration of the year.

In addition, investors tend to prune their portfolios at the end of summer to pocket profits, and most mutual funds cash in their holdings to harvest tax losses.

Thursday witnessed a stock selloff, as investors worried about further Fed rate hikes and a potential government shutdown. The focus was on bond yields, which jumped to multiyear highs in the wake of Fed Chair Jerome Powell’s hawkish comments Wednesday that the Fed’s pause didn’t mean tightening was over.

The benchmark 10-year U.S. Treasury yield on Thursday knocked on the door of 4.50%, its highest level since 2007, pressuring growth investments and weighing on the tech-heavy NASDAQ (see chart).

The good news is that strong jobs and economic data support the view that we’ll dodge a recession. Initial jobless claims released Thursday declined to 201,000 for the week ending September 16, below consensus expectations and the lowest since January.

S&P Global on Friday released its U.S. Purchasing Managers Indices (PMIs) for September, and the data showed the following:

U.S. Manufacturing PMI: 48.9 actual versus 47.9 in the previous month and 48.2 estimated; U.S Services PMI: 50.2 actual vs. 50.5 previous and 50.7 estimated.

The upshot: The economy is decelerating, as the Fed intends, but it’s not careening into a recession. The holy grail of a “soft landing” is within our grasp.

But over the near term, investors are hunkering down. The main U.S. stock market indices closed lower Friday, as follows:

• DJIA: -0.31%
• S&P 500: -0.23%
• NASDAQ: -0.09%
• Russell 2000: -0.30%

The 10-year Treasury yield dipped to 4.43%. The equity indices closed lower for the week.

The fact remains, the Fed is nearing the end of its tightening cycle. However, surprising strength in the economy signals that borrowing costs must remain elevated for a prolonged period, which means at least another rate cut this year and perhaps fewer cuts in 2024.

Crude oil prices currently exceed $90 per barrel and seem to be on a trajectory to reach $100/bbl. Pushing oil prices higher has been the resoluteness of production cuts by OPEC+ as well as unexpected economic resilience. Higher oil prices reflect economic vibrancy and they’ve been manna for energy assets, although energy stocks have gotten overbought as well.

Research firm FactSet reports that overall, Wall Street has 11,062 ratings on stocks in the S&P 500, of which 54.4% are Buy ratings, 40.0% are Hold ratings, and 5.6% are Sell ratings. At the sector level, energy has the highest percentage of Buy ratings, at 64%.

The flip side, though, is that the elevated price of crude is keeping the Fed on its guard against inflation.

Your Congress, (not) at work…

Keeping Wall Street on its toes is the farce playing out in Congress. The ultra-conservative faction in the Republican-controlled House continues to propose severe budget cuts that are dead-on-arrival, which makes a government shutdown all the more likely.

Even House Speaker Kevin McCarthy (R-CA) warned Thursday that far-right Republicans are nihilistic and simply want to “burn the whole place down.” Within the GOP, the establishment-minded right wing is feuding with the extreme right wing.

And the Democrats? They’re following Napoleon’s dictum: “Never interfere with an enemy while he’s in the process of destroying himself.” More to the point, McCarthy is restrained from making a deal with Democrats and moderate Republicans, because in retaliation the hardliners would immediately oust him under the new “motion to vacate” rules.

The House and Senate left town Thursday, without a deal in sight. The deadline to reach an agreement is September 30, only eight days from today. Chaos reigns on Capitol Hill.

I usually counsel readers to keep a sense of detached perspective about the theater in Washington, but the odds of a shutdown are increasing and the consequences would be dire for the economy, the markets, and for millions of Americans who depend on Uncle Sam for support and services.

Further bad news is the United Auto Workers (UAW) strike against the Big Three automakers. On Friday afternoon, UAW members started walking out as the strike spread. Until we get through the many dangers of September, stay cautious.

Read This Story: How to Build Your Own “Profit Dashboard”

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Jim Pearce is the chief investment strategist of our flagship publication, Personal Finance. Jim has unearthed a once “secret” income power play that’s giving everyday investors the opportunity to collect huge payouts, regardless of Fed policy or the ups and downs of the markets. To claim your share, click here.

John Persinos is the editorial director of Investing Daily.

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