Can the global bull market continue? The next 14 trading days will reveal the answer

In the next two weeks, the intensive release of significant economic data in the United States will become a key point for the continuation of the global bull market.

The U.S. non-farm payroll report, inflation data, and Federal Reserve interest rate decision will be concentrated in the next 14 trading days. These significant events coincide with the stock market being at a crossroads—the S&P 500 index has just recorded its smallest monthly gain since July 2024 and is about to face its historically worst September.

At the same time, despite the market continuing to hit new highs, the unusual calm is raising concerns among Wall Street optimists. The S&P 500 index reached a historic high of 6501.58 points on August 28, up 9.8% year-to-date, and has surged 30% since the low on April 8. However, volatility has nearly disappeared, with the VIX index only breaching the critical 20-point level once since the end of June.

Moreover, the valuation pressure facing the market cannot be ignored. Based on analysts' average earnings forecasts for the next 12 months, the current price-to-earnings ratio of the S&P 500 index is 22 times, making the market valuation only more expensive than during the peak of the internet bubble and the tech stock frenzy after the COVID-19 pandemic since 1990.

Key Data Coming Up

The significant events in the next 14 trading days will begin with the monthly non-farm payroll report this Friday (September 5). According to surveys, economists expect about 75,000 new jobs to be added. Stuart Kaiser, head of U.S. equity trading strategy at Citigroup, pointed out:

The forward implied volatility reading for employment data day is only 85 basis points, indicating that the market is underpricing this risk. This seemingly indifferent attitude from traders sharply contrasts with the uncertainty surrounding the upcoming key data and decisions.

This data became a focal point in early August when the Bureau of Labor Statistics revised down the non-farm payroll data for May and June by nearly 260,000, provoking strong criticism from Trump, who fired the agency's head and accused it of manipulating data for political purposes.

On September 9, the Bureau of Labor Statistics will release the expected revisions of the current employment statistics agency survey, which may further adjust employment growth expectations.

Subsequently, the Consumer Price Index report will be released on September 11. On September 17, the Federal Reserve will announce its policy decision, dot plot, and economic forecasts, followed by a press conference from Fed Chairman Jerome Powell. The swap market is currently pricing in about a 90% probability of a rate cut by the Fed at this meeting.

Two days later (September 19), "Triple Witching Day" will arrive (the third Friday of March, June, September, and December), when a large number of stock-related options will expire, expected to amplify market volatility.

Notable bull, Ed Yardeni of Yardeni Research, questions whether the Fed will cut rates in September, which would at least severely impact the stock market in the short term. His reasoning is that inflation remains a persistent risk. Yardeni stated:

"I expect this round of stock market gains to stall soon. The market is digesting a lot of good news, so if the CPI data is hot and the employment report is strong, traders may suddenly conclude that interest rate cuts are not a done deal, which could lead to a brief sell-off."

Wall Street Bulls Begin to Worry

According to a previous article by Jianwen, hedge funds and large speculators are shorting the VIX index at a scale not seen in three years, betting that market calm will persist. However, this extreme positioning and unusual tranquility historically often foreshadow a surge in volatility, as seen in February of this year and August 2024.

Some of Wall Street's biggest optimists are increasingly concerned that this eerie calm is sending a counter-signal in the face of seasonal weakness.

According to data compiled by Bloomberg, the S&P 500 index has averaged a decline of 0.7% in September over the past 30 years, with monthly declines occurring in four of the past five years.

Thomas Lee, head of research at Fundstrat Global Advisors, which has a long-term bullish outlook on the stock market, stated:

"It is correct for investors to remain cautious in September. The Fed's return to a dovish rate-cutting cycle after a long pause has made traders' positioning tricky."

This long-term bullish analyst expects the S&P 500 index to decline by 5% to 10% in the fall, before rebounding to between 6800 and 7000 points by the end of the year.

As the S&P 500 index climbs, investors are increasingly worried about it being overvalued.

Based on analysts' average earnings forecasts for the next 12 months, the current price-to-earnings ratio of the S&P 500 index has reached 22 times, making it more expensive than at any time since 1990, except during the peak of the dot-com bubble and the tech stock frenzy following the COVID-19 pandemic in 2020.

Tatyana Bunich, president and founder of Financial 1 Tax, stated:

"We are bullish on large tech stocks, but these stocks are currently expensive, so we are holding some cash on the sidelines, waiting for any decent pullback to increase our positions."

However, it is worth noting that the rise in U.S. stocks still has fundamental support: the economy remains relatively resilient in the face of Trump's tariff policies, and U.S. corporate profit growth remains strong.

According to the latest Bank of America global fund manager survey, investor optimism towards U.S. stocks has reached its highest level since the peak in February, with cash holdings at a historical low of 3.9%.

Risk Warning and Disclaimer

Markets are risky, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk