Don't panic over September's market slump

There are myriad reasons why stocks could continue to fall:

The Federal Reserve has moved interest rates sharply higher since early 2022, and rates may stay higher. Home sales are slumping, and office real state markets are tough.

Oil and fuel prices surged during the summer. There's talk of $100-a-barrel crude and $5-a-gallon U.S. gas prices.

The United Auto Workers have struck the major U.S. auto producers with no end of the battle in sight.

Intense politicization across the country with the real possibility of another federal government shut down.

The prospect of another bitter election season in 2024.

Sometimes, October proves, dare we say it, a rotten month for investors. Think the crash of 2008 or the market slump of 2022.

But financial markets often behave independently of the headlines, and the last quarter of 2023 may not prove so awful. The job of ridding markets of the froth of this past spring is done.

To be sure, the week ahead has some important economic reports, especially the U.S. Jobs Report due Friday. The consensus estimate is for non-farm payroll growth to dip for September, while the unemployment rate comes in 3.7%.

The Dow Jones Industrial Average (^DJI) - Get Free Report fell 3.5.% in September, with the Standard & Poor's 500 Index (^IN) - Get Free Report down nearly 4.9% and the Nasdaq Composite Index (^COMPX) - Get Free Report down 5.8%. The declines for the S&P 500 and Nasdaq were their worst since December 2022.

The Dow is still ahead on the year, though not by much. The S&P 500 is up 11.7%, with the Nasdaq up 26.3%.

2023 is no 2022

Compare those results with a year ago. The major indexes finished September 2022 down more than 20% on the year. The Nasdaq was down 32.4%. The losses were trimmed in the fourth quarter but still awful.

And then 2023 opened up like a rocket.

This year, stocks are mostly higher.

Tech stocks have had a great year after crashing in 2022. High-end chipmaker Nvidia (NVDA) - Get Free Report finished the quarter up 2.8% after falling 11.9% in September. But it is still up 198% for the year and sports a market capitalization of $1.07 trillion. The only losers among the S&P 500 sectors are real estate, utilities and financial stocks. All thanks to the Fed's higher interest rates.

Energy shares shot up in 2022 along oil prices. This year, the sector is lagging, up 3% through September, according to Standard & Poor's data.

ExxonMobil (XOM) - Get Free Report, up 80.3% in 2922, is up just 3.7% so far this year. Chevron (CVX) may be down 6.1% for the year, but it did rise 4.7% in September and 7.2% for the quarter.

The odds favor higher stock prices through the end of the year -- if everything goes right. How high is a matter of debate. Moderate gains are probable.

One thing did go right on Wednesday. Stocks started to slide in August, and the selling accelerated early in the week. The relative strength indexes of the Dow, S&P 500 and Nasdaq, which track stock momentum, all fell sharply below 30, a clear signal stocks were oversold. Those RSI declines promptly brought in buyers looking for bargains and turned nasty-looking losses into gains for the day.

The call on moderation in the markets comes because employment gains may be softening, and consumer spending is slowing (but not falling). There is in much of the United States a fair amount of consumer confidence. You can see it in the hordes of Americans flying off somewhere or attending football games.

Still, 44 million students may have to start paying down their student loans, and Wall Street is worried about how markets will handle $33 trillion in U.S. debt.

Described this way, the strength of the market will be technology, consumer discretionaries and staples, and communication services, a group that includes Walt Disney (DIS) - Get Free Report, Netflix (NFLX) - Get Free Report, Facebook-parent Meta (META) - Get Free Report, Fox (FOXA) and AT&T (T) - Get Free Report.

Costco Wholesale (COST) - Get Free Report and Nike (NKE) - Get Free Report both reported decent quarterly results this past. Shares of both companies saw buying interest

So let's deal with our key problem areas.

Interest rates and the Fed. The central bank has pushed its federal funds rate to 5.25% to 5.5%. It left the rate alone in September and suggested it might raise rates once more this year. Fed Chairman Jerome Powell and others at the Fed insist the central bank will get U.S. inflation down to 2% from its current 3.7% level and 7%-plus in 2021. Wall Street thinks rate increases are largely done. That leaves a query the Fed isn't thinking about yet: When will rates come down and help lift home sales. Probably not until well into 2024

Related: Fed's key inflation gauge falls to 2-year low as consumer spending slows

Oil prices. Crude oil finished September at $90.79 a barrel, up 8.6% for the month and 13.1% for the year. It fell, however, the last two days of the month, and selling was heaviest when hit $95.03 on Thursday. Remember: Crude oil is still down 25.6% from the 2022 peak of $122.11 and 42.3% from the 2008 peak of $142.31.

Gasoline prices. The American Automobile Association's national average price has fallen 5.6% from September 18's peak of $3.881 per gallon to $3.823. It fact, the AAA price ended September down about 0.1%. The trend seems real until next summer when prices go up.

The UAW strike. The autoworkers want payback from having to give up wages and benefits at the 2008-2009 financial crisis. Rhetoric Friday after the union struck more plants suggested the stoppages will go on for a while. These will affect communities with auto plants from Missouri to upstate New York.

Intense politicization. This is a wild card. We saw that in play this week with the threats of a government shutdown. The House on Saturday surprised by approving a stopgap plan to keep the government open and avert the shutdown that was less than 12 hours away. The Senate was to vote Saturday night. A key question. The House bill contains no money for Ukraine and its fight against Russia.

The 2024 election. It's a long time off. It will be bitter, but stocks did move higher in 2012, 2016 and 2020.