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A jobs report that points to 'ongoing economic recovery': What experts are watching in September

Investors are looking at employment numbers, progress toward a Covid-19 vaccine, and the first presidential debate between Donald Trump and Joe Biden in the month ahead.

Twenty/20

The arrival of September typically signals lackluster market returns, sometimes known as the September Effect. Since World War II, the S&P 500 has averaged a decline of 0.5% in September, according to CFRA, and tends to be even rockier in election years.

But a number of factors could influence market performance heading into the fall, particularly as we contend with ongoing concerns related to the coronavirus pandemic and a presidential election on the horizon. Here's a look at what investors are watching for in the coming month.

Employment numbers that are 'supportive of an ongoing economic recovery'

On September 4, the August jobs report will be released. If those numbers show a continued increase in employment, that should support growth in the market, says Ken Moraif, CFP, senior retirement planner at Retirement Planners of America. "On the other hand, a lull or a decrease in employment could be a warning sign that may result in a downward trend for the market," he says.

Jobless claims remain the most important economic report for investors to watch on a weekly basis, says Matt Nadeau, wealth advisor at Piershale Financial Group, Inc. Recently, those numbers have been "a little worse than expected," he says, at around the 1 million mark. The market is most interested in seeing this weekly number move consistently toward 500,000 rather than climbing higher toward 1.5 million new claims on a weekly basis. "As long as claims don't start drifting higher, the market will view the data as supportive of an ongoing economic recovery," Nadeau says.

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Investors will also be watching the next meeting of the Federal Reserve's Open Market Committee on September 15 and 16. That meeting will include the Summary of Economic Projections, "which could give us some good insight as to what the regional Federal Reserve Banks are projecting in terms of GDP, unemployment data, and inflation," Moraif says. "This could provide some insight into the market's true strength or if it's only falsely inflated due to support from the Fed and Congress."

Ahead of the election, all eyes on Washington

In September, investors and analysts are looking for material progress from Congress toward a new stimulus package. To date, the stimulus packages "have eased the pain of this recession, with the government acting as a paycheck for the unemployed and as a source of revenue for small businesses," Nadeau says. "This needs to continue to act as a bridge for the economy while enduring the pandemic." A strong package, or lack thereof, has the potential to move the market.

The upcoming election may also have an impact on the markets this month. Traditionally, the market reacts to change. So if polls and headlines point toward a Democrat sweep of the House, Senate, and presidency, "the markets may start pricing in the potential for corporate tax hikes, changes in the trade tensions with China, and just an overall increase in market risk based on a variety of potential policy changes," Nadeau says.

Even though the election is two months away, the market is likely to react to election-related news as early as September. "We live in a new era where a simple tweet by the current administration can directly impact the market," says Bryan Bibbo, lead advisor with The JL Smith Group. "For this reason, it's good to note that an event such as the first presidential debate [set for Tuesday, September 29] could create a market surge or downturn. Whether one of the candidates presents a potential policy, or how the public perceives the performance of each candidate, we may see the market climb or take a dip."

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'We will likely see a surge once a vaccine is created'

Investors will also be keeping an eye on the progress being made towards a potential vaccine. "As news surrounding a potential vaccine emerges, this could directly impact the market and we will likely see a surge once a vaccine is created," Bibbo says.

Nadeau says that other vaccine-related questions — manufacturing timeline, effectiveness, number of available doses, costs, and what groups will be the first to get it — will all play a part in how the market reacts. 

Prepare for potential volatility

With so many uncertainties, it can be easy for investors to panic. Just because there are many questions in the air doesn't mean the market won't keep trending higher — it just means that there are potential reasons for a market pullback, Nadeau says.

"Investors should take this time to make an honest assessment of their risk tolerance and the uncertainty based on these risks that are still out there," Nadeau says. "Everyone should have a specific plan in place, which will reduce the chances that your decisions will be impacted by emotions when risk and volatility returns."

And it's likely to, Bibbo says: "Nobody could have predicted the pandemic, and nobody can really predict when life will completely return to normal. Therefore, if you haven't already, make sure your investment plan can provide you peace of mind, regardless of which way the market turns."

Nancy Mann Jackson is an award-winning journalist who specializes in writing about personal finance, real estate, business, and other topics. Her work appears in several publications, including CNBC.com, Fortune.com, Entrepreneur, Working Mother, and CNNMoney.com.

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