As August wrapped up, trading desks and investment firms looked warily at the lineup of events in September and warned clients of turbulence ahead.
The Fed's September meeting is when many on Wall Street think the central bank will begin winding down its massive bond-buying program. German voters will decide whether Chancellor Angela Merkel gets another term as the leader of Europe's largest economy. And Congress will be on a tight deadline to pass a spending bill before the month ends, a process which could easily turn into another brawl over raising the government's borrowing limit.
Each item on the calendar could cause big swings in daily trading. And collectively, they could make an often dangerous month for the market even more volatile.
"Right now, we're probably in the lull that precedes the storm," says Mark Luschini, the chief investment strategist at Janney Montgomery Scott in Pittsburgh.
September has often been a cruel month for the stock market, which gives it a superstitious power for some investors. Since 1945, the Standard & Poor's 500 index has slumped nearly six out of every 10 Septembers, with an average loss of 0.6 percent.
This one could be much worse, investors say. Luschini and others think the S&P 500 could fall more than 9 percent from its record high of 1,709.67 reached Aug. 2.
On the bright side, the same people who think the market is likely headed for a rough stretch in the coming weeks also think it won't last. Even good years have bad months.
The Fed meeting, Sept. 18
First up, it's the Fed meeting that everybody on Wall Street spent the summer talking about. Conventional wisdom says that the Fed will announce plans to trim its monthly purchases of bonds from $85 billion to around $75 billion. It would be the Fed's first step toward winding down the $3 trillion bond-buying program launched during the financial crisis.
There's trepidation about the move known as "tapering" because the Fed's efforts have held down borrowing rates, a boon to the once-devastated housing market.
Minutes from the Fed's July meeting showed "broad support" for scaling back. But there was nothing about how much.
The danger is that the Fed scales back much more than expected, says Glenmede' s Pride. Maybe, for instance, the Fed will buy $55 billion each month.
"Markets will react as if the Fed is slamming on the breaks," he says.
Barring any big surprises, however, investors will likely take the Fed's next move in stride, says Sam Stovall, the chief equity strategist at S&P Capital IQ.
Markets are supposed to be forward-looking and Fed Chairman Ben Bernanke started signaling a move to withdraw some support in May. People have had months to prepare for it. "I think there will be a collective yawn if they start tapering in September," Stovall says.
Investors may wind up more concerned about who replaces Bernanke when his term ends in January. President Barack Obama could nominate a successor as early as September. The current front-runners are Janet Yellen, the Fed's vice chairwoman, and Larry Summers, the former Treasury Secretary.
Stovall says that Summers seems like more of a political operator than Yellen. His concern is that a Fed under Summers would be less impartial, undermining an institution that's supposed to be independent of political winds.
"My worry is that Larry Summers gets it," Stovall says. "I really think his nomination would reduce investor confidence in the Fed."
German election. Sept. 22
Remember the European debt crisis? From late 2009 until last year, worries about Greece, Spain or another of the continent's troubled economies would flare up and send the U.S. stock market into a tailspin.
This year has been different. France and Germany helped tug the eurozone out of an 18-month recession this spring. A closely watched survey recently showed business activity rising for four months straight.
Germany's elections on Sept. 22 will likely push Europe back into the spotlight, if only because of what happens afterward. Analysts expect that the new German government will take up long-awaited reforms for the eurozone, the 17 countries that use the euro currency. That could easily lead to some public spats, especially if Greece's struggles to pay its debts again. Last week, Germany's finance minister said the country will need a third bailout package, a source of resentment for many Germans.
"Europe has been off the table as a looming risk, and that's likely to change once the election is over," says Martin LeClerc, chief investment officer at Barrack Yard Advisors in Bryn Mawr, Pa. "Europe is going to have to tackle some big issues."
Merkel's party leads in polls, and if she gets a third term in office with a stronger government, Pride of Glenmede thinks it could embolden her to drive the eurozone countries closer together. "Ultimately, that's a good thing for Europe and also a good thing for the market," he says.
The budget. Sept. 30
If investors get through the Fed meeting and events in Europe unscathed, there's still one obstacle at the end of the month. And it could prove to be the biggest one, Pride says.
When members of Congress return from their summer break on Sept. 9, questions about Syria may top of their concerns. But they will also face two deadlines tied to the federal budget.
To keep the government running, Congress needs to pass a short-term spending bill before the fiscal year starts Oct. 1. And then there's the government's $16.7 trillion borrowing limit. Treasury Secretary Jacob Lew warned that, unless it's raised soon, the government would lose the ability to pay all its bills by the middle of October.
The Obama administration has said it won't negotiate spending cuts with Congressional Republicans in exchange for lifting the debt limit.
John Boehner, the Republican Speaker of the House, said Aug. 26 that he plans to use the debt ceiling to demand deeper spending cuts. He promised "a whale of a fight."
The recent tough talk has reminded many in the financial markets of the debt-ceiling fight in August, 2011. That fight led the rating agency Standard & Poor's to strip the U.S. of its top, AAA credit rating. Stock markets slumped worldwide and the S&P 500 index plunged 6 percent in one day, its steepest daily drop since the 2008 financial crisis.
Among investors, there's a widely shared view that any budget squabbles could get rough but not as bad as back then.
"We think cooler heads will generally prevail," Pride says. "But if Boehner and his crew decide to hold the President's feet to the fire," it could spiral into a something sure to unnerve investors in the U.S. and abroad.
A drawn-out brawl, Pride says, could easily become "the largest speed bump for this year's market rally." So far, the S&P 500 is up 15 percent.
The fight is likely to follow the same plotline as earlier ones, investors say. A scary standoff ends with a last-minute agreement. And then, they hope, the market will rally.
"When it's over, we'll get back all that was lost," Luschini says.