Before September's Challenge, Stocks Were Hit by a Tech Rout

Wall Street stocks fell as a wave of selling hit the tech sector the same group that fueled the rebound after April’s slump. This came despite inflation data that barely moved the needle on expectations for Federal Reserve rate cuts. Meanwhile, bonds and the dollar saw only minor changes.

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A sharp drop in the S&P 500’s most influential stocks pulled the index off its recent record high, ending a strong August run. The Nasdaq 100 lost 1.2%, signaling renewed pressure on growth names. Investors are now gearing up for September, historically the weakest month for U.S. equities, as institutional portfolios rebalance, retail trading slows, and volatility rises.

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“It’s month-end, and we’re entering the most challenging period of the year,” said Louis Navellier of Navellier & Associates. “Caution makes sense here. Still, history shows dip buyers often return quickly.”

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While broader macro forces typically steer the market’s direction, seasonal factors can amplify swings caused by economic data or monetary policy shifts. Fresh numbers show U.S. consumer spending climbed in July at its fastest pace in four months a sign of steady demand despite persistent inflation.

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All eyes now turn to next week’s jobs report, a key driver for the Fed’s rate-cut timeline heading into year-end.

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“Unless we see a massive payroll surprise next Friday, we still think a September 17 cut is likely,” said Jennifer Timmerman at Wells Fargo Investment Institute, pointing to the Fed’s increasingly dovish tone.

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San Francisco Fed President Mary Daly echoed that sentiment, noting policymakers are prepared to ease soon and suggesting tariff-related inflation pressures should be temporary.

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Despite Friday’s losses, the S&P 500 still notched its fourth consecutive monthly gain. Among big tech names, Nvidia led the decline, while Alphabet managed to rise. Dell Technologies tumbled on slimmer server margins, and AI infrastructure stocks slid after Marvell Technology’s outlook sparked concerns over data-center demand.

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In fixed income, short-term Treasuries outperformed, with the two-year yield dipping two basis points to 3.61%. The dollar was little changed overall but ended the month lower.

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On inflation, the Fed’s preferred gauge the core personal consumption expenditures (PCE) index rose 0.3% from June. Year-over-year, it climbed to 2.9%, the highest since February.

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“The upside is these numbers match expectations, which keeps a September cut firmly on the table,” said Bret Kenwell at eToro. “The downside? Inflation is still edging up, which isn’t the backdrop the Fed wants for cutting.”

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For now, though, Kenwell believes an in-line PCE report reinforces the case for easing next month. Without a strong jobs beat, it’s tough to see the Fed stepping back from its plan to reduce rates, he added.

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The central bank has held rates steady so far in 2025, partly due to worries that tariffs could fuel price pressures. But weak employment data after July’s meeting raised concerns. Fed Chair Jerome Powell recently hinted a cut may be warranted, citing a “shifting balance of risks.”

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“With earnings season over, the market’s focus shifts back to economic data especially the August jobs report due next week,” said Adam Phillips of EP Wealth Advisors. “Any surprise that challenges the rate-cut outlook could jolt investors.”

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“The Fed has opened the door to easing, but how wide that door stays will depend on whether job-market weakness outweighs inflation concerns,” added Ellen Zentner at Morgan Stanley Wealth Management. “Right now, September still looks like the favorite.”

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Atakan Bakiskan of Berenberg agreed, saying the Fed is laser-focused on labor conditions: “As long as next week’s jobs report confirms a weakening market, September is in play.”

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Anna Wong at Bloomberg Economics highlighted the risk factor: “Markets are pricing in a September cut. A soft payroll number seals it; only a big upside surprise could derail expectations.”

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Fed Governor Christopher Waller reinforced the case Thursday, supporting a quarter-point cut in September and signaling more reductions over the next three to six months. He left room for deeper easing if the labor data points to a sharper slowdown.

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Friday’s figures cemented projections for two Fed cuts this year, starting as early as next month, as policymakers respond to a cooling job market while inflation remains above target.

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“Tariffs may have some impact, but runaway inflation fears aren’t materializing,” said David Russell at TradeStation. “Consumers still look solid, even if confidence is shaky.”

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Chris Zaccarelli of Northlight Asset Management added that inflation is rising slightly but in line with forecasts, making next month’s cut more likely: “Despite September’s reputation as a weak month, we don’t see anything threatening this bull run.”

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If volatility spikes in September or October, Zaccarelli views it as “a prime buying opportunity especially if the Fed cuts without a recession on the horizon.”

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Gina Bolvin also noted that September isn’t always a disaster: historically negative just 44% of the time. When markets trade above the 200-day average, as they are now, the average return is still positive at about 1%.

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“That sets up a strong case for buying dips,” said Bolvin, president of Bolvin Wealth Management. “Seasonal weakness may hit, but I’d look to add on pullbacks.”

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