Labor Day may provide Wall Street traders with a day off, but markets don’t actually sleep. The shutdown is more symbolic than practical, as it is a temporary break in a year where the investors have been stuck to inflation readings, Fed indications, and technology profits.
With August seeing good gains in the stocks, particularly the Russell 2000, this break seems like almost a victory lap for small caps, which only got a chance to breathe after so many months of tiredness. Yet, one holiday can’t erase the fact that volatility may be roaring back into action the moment trading comes back on.
The long weekend comes at the right time. The S&P 500 reaching new highs and the Dow adding significant gains indicate strength, despite higher rates and policy uncertainty lurking in the shadows. The fact that small and mid-caps rallied 7% in August indicates increased participation across the broader market. This tends to be a positive sign for sustained rallies.
On the other hand, holidays merely postpone the expected, as increasing costs of borrowing, geopolitical threats, and changing investor sentiment could readily spoil momentum. The true test will come after the break, will markets capitalize on August’s strength, or will September’s reputation for volatility serve as a reminder to investors to keep their guard up?
Labor Day might be a pause button for the U.S markets, but it’s not a reset. Whether the gains of August are the beginning of a sustained rally or merely a seasonal spike will be clearer once Wall Street is back on its screens. For the moment, traders are free to take the day off.
