As Wall Street braces for action, the next 14 trading days will be crucial in determining whether the recent stock market rally holds or falters.

With pivotal factors like jobs reports, inflation data, and the Federal Reserve's interest rate decisions looming, the market is at a dramatic crossroads. The S&P 500 recently reported its weakest monthly gain since March, heading into September, historically the market’s toughest month.

A Calm Before the Storm?

In an unusual twist, volatility seems to have vanished, evident by the Cboe Volatility Index (VIX) only trading above the significant 20 mark once since late June. Moreover, the S&P 500 has notably avoided a 2% sell-off for 91 sessions, the longest streak since July 2024, recently hitting an impressive all-time high of 6,501.58 on August 28, showing a year-to-date increase of 9.8% after soaring 30% since its low in April.

"Investors are right to tread carefully in September," notes Thomas Lee, head of research at Fundstrat Global Advisors. He predicts the S&P 500 could drop 5% to 10% this fall before bouncing back to a range between 6,800 and 7,000 by year-end.

Chill in the Air—or Something More?

Lee's caution is echoed by even the bull-hearted optimists on Wall Street, who worry that this eerie calm could signal deeper issues amid seasonal weakness. Historical data reveals that the S&P 500 typically loses an average of 0.7% in September, having experienced declines in four out of the last five years.

The current tranquility does not always bode well; similar scenarios have preceded spikes in market turbulence before. For instance, when the S&P peaked in February, traders were blindsided as volatility surged due to concerns about economic policies.

Fundamentals at Play

Despite these warnings, fundamental factors drive the S&P 500's growth. The economy is showing surprising resilience in light of ongoing tariffs, and corporate profits are still robust. According to a recent Bank of America survey, investor cash levels are historically low at just 3.9%, indicating bullish sentiment.

A Valuation Dilemma

Yet, as the S&P 500 climbs, concerns grow about overvaluation. Currently, the index trades at 22 times analysts’ earnings forecasts for the next year, a level only seen during the dot-com bubble and the recent tech resurgence post-COVID-19.

Tatyana Bunich, president of Financial 1 Tax, remarks, "We're keen on big tech but holding cash in readiness for a market pullback that gives us better buying opportunities."

Fed's Rate Decisions Hang in the Balance

Dr. Ed Yardeni from Yardeni Research cautions that whether the Federal Reserve cuts rates in September remains uncertain, due to lingering inflation risks. He warns, "If we see a strong jobs report and a hot CPI, traders might rethink the possibility of rate cuts, leading to a short-lived sell-off. But ultimately, stocks are positioned to recover as the underlying economy remains solid."