Stocks stumbled out of the gate after Labor Day, with a jittery tone gripping markets as the typically weak month of September began in earnest after the holiday.
The Dow Jones Industrial Average shed 628 points, or 1.2%, on Tuesday, booking its largest point and percentage decline since Aug. 20, according to Dow Jones Market Data. The blue-chip index has now fallen five of the past seven trading days and is off 2.9% from its record closing high on Aug. 5.
The S&P 500 dropped 0.6% Tuesday, while the Nasdaq Composite lost 0.3%. Meanwhile, the Cboe Volatility Index, known as Wall Street’s “fear gauge,” was awakening from its summer lull — pointing to the potential for more volatility in the S&P 500 over the next month.
“It almost feels like it’s easier to sell than buy,” said Mark Hackett, chief market strategist at Nationwide Investment Management Group, in a phone interview Tuesday.
Investors came back from the holiday with “a lot of reasons” not to commit to buying stocks, Hackett said, including deteriorating U.S.-Canada trade relations and a fresh flare-up in the Iran war. But there’s also plenty of focus domestically, with U.S. benchmark oil prices up 64% on the year, topping $94 a barrel.
That backdrop has Hackett thinking the hesitant tone will continue up through Friday’s consumer-price index report for August. Any warm reading could tip the scales for the Federal Reserve to trigger its first interest-rate hike since 2023 later this month.
Fed in a box?
Hackett isn’t alone in feeling nervous ahead of Friday’s CPI report.
“I think it’s really about inflation, and Friday is going to be the big tell on that front,” said Emily Roland, co-chief investment strategist at Manulife John Hancock Investment Management.
Roland said the Fed, under new Chairman Kevin Warsh, almost needs to greenlight a rate hike at the conclusion of its Sept. 15-16 meeting. “I think they’re going to have to,” she said.
Otherwise, the dollar could tank, making imports to the U.S. more expensive, which would add to inflationary pressures. Also, the summer selloff in the long-end of the Treasury curve likely could intensify, ratcheting up yields and the cost of capital at a pivotal moment for markets.
The Treasury Department on Wednesday is poised to at least double its buybacks of longer-dated 10-year to 30-year Treasurys, as part of its intervention to keep yields from climbing much higher. Near 4.8% and 5.25%, respectively, those yields already have been hovering near their highs of the past two decades.
“Warsh kind of has to follow through,” Roland said, pointing to increased confidence in markets about the Fed chairman’s willingness to act to coax inflation lower following his speech at the Jackson Hole Economic Policy Symposium in late August.
The odds on Tuesday for one rate hike in September were at 60%, while a second hike at the Fed’s December meeting was chanced at 36.7%, according to the CME FedWatch Tool.
With the Fed holding rates steady all year, the S&P 500 has gained more than 12% in 2026. A stunning pace of earnings growth has also helped the rally broaden out beyond tech, chip stocks and the big momentum plays that drove the market to fresh highs this summer.
However, it now looks like rewarding the “check takers” of the artificial-intelligence spending blitz was an easy way to win in 2026: The benchmark PHLX Semiconductor Index is up almost 68% so far this year.
Also, the iShares MSCI USA Momentum Factor ETF — which includes highflying chip stocks Micron Technology, Advanced Micro Devices and Intel, as well as Exxon Mobil and Caterpillar — has been struggling since its peak earlier this summer, as the above chart shows.
Another thing that’s changed is investors cooling on the AI “hyperscalers” as they issue enormous amounts of debt and equity to fund their data-center build-out. Higher bond yields would make it more expensive for a historic build-out that hinges on debt.
“The investor mindset shifted, and now sentiment shifts,” said Nationwide’s Hackett, pointing to heightened backlash against the data-center build-out from politicians ahead of the midterm elections, as well as from average voters.
“It’s a lot easier to buy a fast-growing stock when everyone is on your side,” Hackett noted.
