Bond market turmoil and the September "curse" become key tests for U.S. stocks! Barclays urges investors to reduce risk exposure

According to Zhihu Finance APP, Emmanuel Cau, Head of European Equity Strategy at Barclays, stated that the seasonal factors in September, the approaching midterm elections, interest rate volatility, and the upcoming artificial intelligence (AI)-related IPOs are further strengthening the case for equity investors to selectively reduce their risk exposure.

Emmanuel Cau pointed out that after a "complex" summer, investors now face an unsettling September, with several catalysts in the coming days likely to set the market tone. Among these, rising bond yields are a major concern for equity investors. The market is increasingly worried that higher oil prices will drive up inflation, which has pushed the 10-year US Treasury yield up to 4.8%, approaching the 5% level that is typically considered unfavorable for equities. Speculation that the Federal Reserve may be forced to hike rates has also increased, further pushing up bond yields. He emphasized: "If the bond market fails to achieve some degree of stability, it will be difficult for the stock market to continue moving higher. I think there is now a reason to selectively reduce beta risk exposure."

Emmanuel Cau believes that the direction of interest rates is the "elephant in the room" for the stock market, and the Federal Reserve's data dependence is fueling market volatility. He said that if upcoming US inflation and employment data released in the next few days are weak, the stock market could continue to rise; on the other hand, if the data beats expectations, "the market will start to become more nervous." He added: "The market has become more sensitive to rate volatility once again. If the 10-year US Treasury yield reaches 5%, I suspect people will be even more concerned about its impact on equities."

September has historically been the worst month for S&P 500 performance

Statistically, September has always been a weak month for equity market performance. In addition to the bond market currently dominating market trends, Emmanuel Cau also mentioned the possibility of imminent large IPOs, as investors worry that these new listings could drain liquidity from the market.

It is worth noting that Grace Peters, Global Head of Investment Strategy at JPMorgan Private Bank, recently stated that as the equity market enters September—historically a weak-performing period—rising bond yields represent a major risk to global equities. She believes that both US and European stock markets have room to rise further this year, but also warned that before risk events such as the US midterm elections in November, equities could see a 5% to 8% correction. However, she views this as a healthy profit-taking rather than a structural crash.

Grace Peters stated: "A 5% yield level has a psychological impact, and I think the stock market could react quickly to this. Especially taking into account the seasonal factors of September, the midterm elections, and the fact that the catalyst from the Q2 earnings season has already passed."