Traders work on the floor of the New York Stock Exchange August 28, 2013. August was the Dow's worst month for losses since May 2012 and September could be stormy too, analysts say.
The list of worries for markets this September just keeps getting longer.
September is historically the worst month for stocks, but this year, the calendar is a minefield for markets. From the Federal Reserve's mid-month meeting to German elections, Japanese tax changes, and U.S. budget debates, there's been a long list of potential catalysts for pain.
Add to that the sell-off in emerging markets, which as the Fed signals a move to normalize rates, has resulted in a jump in interest rates for emerging economies and has driven the Indian rupee to all-time lows. The looming possibility of a U.S. military strike on Syria is the latest worry and is to be determined by the U.S.Congress next week.
(Read more: Syria looms as traders await jobs report)
There is also the question of whether the U.S. economy will really accelerate, or whether there are cracks showing in the housing recovery, a concern as interest rates rise. Data this week, including the important August jobs report on Friday, will be a key barometer for third-quarter strength and an important element for the Fed's decision on whether to pare back its stimulus package of $85 billion a month in bond buying when it meets Sept. 17 and 18. Anticipation of a "tapering" of bond purchases has sent interest rates higher since early May.
"We know there has been a tapering story which has also turned into an emerging market sort of crisis story, and now on top of that you have this Syria story. You kind of have this triangle of pain," said Michael Hartnett, chief global equity strategist at Bank of America/Merrill Lynch. "Could one help to offset the other? There's no doubt that at the margin, Syria has the potential to reduce the tapering at the Fed."
President Obama's delay this weekend in what appeared to be an imminent attack on Syria was a positive for stock futures and a negative for oil. But it is also another reason for markets to watch Washington with a heightened level of anxiety. Congress already has spending decisions to make on funding the federal budget and will be debating the debt ceiling, which the Treasury Department says will be hit in October.
(Read more: September may be worse for stocks)
"Frankly, at the end of the day, it's just another complicating factor in the midst of many this month," said Mark Luschini, chief investment strategist with Janney Montgomery. Luschini said the list of unknowns is likely to keep some investors sidelined.
Analysts have been expecting stocks to see a correction this year, and some have said the history of rocky Septembers is a strong pull.
"Maybe we're getting some of September out of the way in August," said Bob Doll, Nuveen Asset Management chief equity strategist and senior portfolio manager. The Dow was down 4.5 percent for August, ending last Friday at 14,810, and the S&P 500 was 3.1 percent lower at 1,632, and the Nasdaq was off one percent at 3,589.
September markets also have history against them, with the Dow down 60 percent of the time since 1950.
"September is usually not a good month for equities, so there are the seasonal issues. Given the volatility in the first half, net-net, September is not going to be great, but October, November and December should be good," said Binky Chadha, chief global strategist and head of asset allocation at Deutsche Bank.
Nuveen's Doll said Syria, the lack of clarity on the Fed's plans and uncertainty over whether former Treasury Secretary Larry Summers or Fed Vice Chair Janet Yellen will replace Fed Chairman Ben Bernanke in January are among the issues weighing on markets. "It's the collection of these uncertainties and the absence of revenues and earnings that puts us in this funk," he said, adding selling could continue in September. "But I don't see big downside."
"I've been calling for a 1,550 to 1,700 trading range (on the S&P), and I'm still of that view that that's going to continue," said Doll. "I think we're in this sideways chopping, consolidating, boring period for a while."
Economists expect to see 180,000 non-farm payrolls added in August, and the unemployment rate unchanged at 7.4 percent, according to Thomson Reuters. There were 162,000 jobs added in July and the August jobs report is expected to be the last big number the Fed will use to makes its decision on whether to slow down its bond buying, or quantitative easing.
The Fed is expected by many economists to announce plans to reduce bond purchases if the number is strong, or mostly in line number with expectations. Economists vary with the amount of wind down they expect, which most seeing a $10 billion to $25 billion reduction in bond purchases.
"If the number disappoints then the guessing game will remain alive and well until the Fed meets in the middle of the month," said Janney's Luschini.
(Read more: Syria and the 'unknown unknowns')
Bond yields have been moving higher ahead of the Fed's September meeting, and just as there is disagreement in the market about when the Fed will taper, there's a range of opinions on how much it will reduce its bond purchases. Fed officials have said they would like to begin cutting back on purchases before year end and complete bond buying by the middle of next year.
The German election Sept. 22 has been getting a lot of focus in the foreign exchange market even though a coalition backing Chancellor Angela Merkel is expected to win. Analysts say the concern is not so much whether Merkel wins but how issues will be dealt with that have been delayed until after the election—Greece being one of them.
Investors are also watching Japan, where Prime Minister Shinzo Abe has promised to decide in September on whether to raise the consumption tax by 3 points to 8 percent, which could slow the economy.
First published September 3 2013, 7:45 AM