Fed rate hike and bond yield surge May trigger September stock correction

Since 1928, September has been the most volatile month for the S&P 500, with the index declining 55% of the time and losing an average of 1.1% in September, according to Yardeni Research. The first three weeks of this year saw the S&P 500 trade sideways, but recent Fed actions have raised concerns about a potential correction.

Earlier this month, the Federal Open Market Committee voted unanimously to raise the target range on the federal funds rate, marking the first rate hike in more than three years. The move coincided with a surge in Treasury bond yields, which reached 5.01% on Friday, September 18, the highest payout since July 2007. Analysts note that such rate hikes often precede stock market corrections, with the S&P 500 dropping an average of 11% in the following three months.

Bank of America‑surveyed fund managers cite rising yields as the single greatest risk to the market, warning that higher borrowing costs could dampen corporate earnings growth. As bonds become more attractive relative to stocks, investors may shift capital, potentially pulling the major indexes down. The combination of a Fed rate hike and elevated bond yields suggests that investors should be prepared for a drawdown in September.

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