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after a brief fluctuation in early august, the three major u.s. stock indexes are back near their historical highs. at the same time, the market style has returned to the state at the beginning of the second half of the year, and the rally has spread further from technology stocks.

after the labor day holiday, u.s. stocks will start trading in september. as the worst performing month in history, as the fed's interest rate cut is about to take effect, whether the curse can be broken will become a major highlight in the coming month.

the big seven no longer lead the rise

in the first half of this year, the strength of large technology stocks under the ai ​​boom led the three major stock indexes to record highs. with the expected rate cuts and the escalation of valuation concerns, the sector rotation began in the second half of the year. according to statistics from bank of america global research, since the us inflation report on july 11, the performance of the seven giants including nvidia, tesla and microsoft has lagged behind the other 493 stocks in the s&p 500 index by nearly 5 percentage points.

last week, nvidia's earnings forecast failed to meet investors' high expectations, further encouraging investors to look beyond technology. as a result, the equal-weighted s&p 500 index hit a new high and narrowed the gap with the s&p 500.

sid vaidya, chief investment strategist at td wealth, said that with the u.s. economy remaining stable and the federal reserve starting to cut interest rates, small-cap stocks and bonds seem ripe to benefit. he expects u.s. economic growth to slow slightly in the second half of this year, but growth will rebound to around 2.3% next year. "we have seen some cooling in the economy and the labor market. but this pullback is temporary, and in this context, the focus on stocks should be value-oriented."

liz ann sonders, chief investment officer of charles schwab, also found that the market has seen a very meaningful expansion of gains recently, including sectors such as finance and industry, which are sectors that trade at a discount on indicators such as book value or price-to-earnings ratio. the agency's statistics show that 61% of stocks in the s&p 500 index have outperformed the index in the past month, while this proportion was 14% in the past year.

overview of the three major us exchanges

one sign of the market's rebound higher since plummeting to a low on aug. 5 is how strong the underlying breadth is, wealth management and research firm bespoke reported. "whether you look at the number of stocks hitting new 52-week highs, the percentage of stocks trading above their 50-day moving average, or the net number of stocks that are up, we are seeing significant improvement."

david lefkowitz, head of u.s. equities at ubs global wealth management, believes that if the upcoming non-farm payrolls report shows that the labor market is cooling at a steady but not alarming pace, it could help support a broader market rebound. "the employment report tends to be one of the more market-moving releases, and now it will receive more attention than normal."

jason alonzo, a portfolio manager at harbor capital, said investors are unlikely to abandon tech stocks, especially if volatility gives them a chance to buy on dips. tech stocks are expected to post earnings growth above the market every quarter through 2025, according to lseg data. “people sometimes take profits after a big rally and look at other opportunities, but technology remains the clearest driver of growth, especially the ai ​​theme.”

history of interest rate cuts and the september curse

after fed chairman powell's speech at the jackson hole global central bank annual meeting, the september rate cut has been fully priced in by the market. as a result, risk appetite has further rebounded, and the chicago board options exchange volatility index (vix) has plummeted by more than 70% from more than 60 points on august 5, and is already below its long-term average of 19.5.

however, salvatore ruscitti, u.s. equity strategist at mrb partners, remains cautious, saying that with stocks already near highs again, some investors may consider selling stocks and taking a defensive stance at the first rate cut. "the answer depends on the economic outlook," he wrote. "history is clear. in cases where a recession occurred after the fed began easing policy (i.e., july 1990, january 2001, and september 2007), stock prices fell in both three and six months after the first rate cut. in contrast, when no recession occurred in the short term after the first rate cuts in july 1996, september 1998, and august 2019, investors saw good returns in the following months."

chris haverland, global equity strategist at wells fargo investment institute, believes there are enough similarities between economic conditions now and (the 1995 cycle) to provide a potential roadmap for corporate earnings and stock prices in the coming quarters. in the year after the first rate cut, s&p 500 earnings grew 12%, and the s&p 500 surged more than 40% in the subsequent 18 months.

however, the current monetary policy cycle has seen a higher inflation peak, with the fed keeping interest rates at peak levels for much longer. "even so, we think the u.s. economy will avoid a recession and gradually strengthen through 2025. this, combined with easier financial conditions, should support continued earnings growth, equity strength, and our preference for high-quality companies in the u.s. large-cap sector," haverland said.

rushdie believes that some forecasts of a u.s. recession are clearly exaggerated. the fed is not behind the curve in addressing weak labor demand, and economic growth will cool this quarter, but it is still a safe distance away from stagnation or contraction. nevertheless, the stock market is unlikely to resume its steady climb from here until there is more confidence in the soft landing scenario.

in addition, seasonal headwinds may make investors less willing to increase stock exposure at the moment, while anxiety about geopolitical tensions and the upcoming us election may also affect market sentiment. dow jones market statistics found that since 1928, the s&p 500 has fallen an average of 1.2% in september.

adam turnquist, chief technical strategist at lpl financial, said the s&p 500 has risen only 43% of the time in september since 1950, making it the worst month for stocks. as the federal reserve prepares to cut interest rates during the most volatile period of the year for stocks, the market is becoming unpredictable.