September is famously the worst month for stocks on average, a phenomenon that has been heavily debated and attributed to tax-loss selling or parents liquidating assets for back-to-school costs. The so-called September Effect has also been dismissed as totally meaningless.

Putting the market psychology aside, this September has given markets plenty of reason to reinforce the stereotype: oil prices on a war-fueled incline, rising AI apocalypse anxiety and, of course, this week’s interest-rate hike. Some analysts believe that, while the September Effect may be in full swing this year, there is still time for a positive October (and later) surprise.

Here Comes the Fall (Autumn, That Is)

There are no doubt investors concerned about the impact of the Federal Reserve’s decision this week to raise interest rates. After Goldman Sachs CEO David Solomon noted the investment bank’s fixed-income trading business has already been “a little bit softer” this quarter, its shares fell 4% Wednesday. Higher rates can slow corporate bond issuance and broader underwriting activity, two things Solomon’s remark suggests may already be happening at a marginal level.

Then there’s Macro Risk Advisors CEO Dean Curnutt, who wrote to clients earlier this week that a rate hike could trigger an S&P 500 pullback of up to 10%. In particular, he flagged the risk posed to corporate margins by higher interest rates, which increase the cost of borrowing money and slow consumer spending. He also pointed to 2018, when “the Santa Claus rally did not come,” as a reason to be concerned about the economic backdrop for the rest of this year. Back then, there was a September rate hike, surging bond yields, the protectionist trade policies of the first Trump administration and a rotation out of highly valued Big Tech stock. Sound vaguely familiar? But there are also experts who see an upside:

• Citadel Securities says it has become “increasingly constructive” about the market’s end-of-year prospects. Since 1930, the trading firm found, the S&P 500 has fallen an average 1.1% in the last two weeks of September before bouncing back in October. In midterm election years (don’t forget to vote), the index has gained 5.6% from the end of September through New Year’s Eve.
• If past is prologue, Goldman Sachs sees reasons for optimism, too. The investment bank said that while the S&P 500 declined an average of 2% in the first three months of seven rate-hiking cycles, the index ultimately posted an average 12-month gain of 9%.

Vote of Confidence: So far, the Fed’s move to address inflation has had a calming effect on market turmoil overall. The S&P 500 rose 1.14% Thursday while Treasury yields and oil prices fell. “This appears to be the market’s vote of confidence,” said Chris Osmond, chief investment officer at Fifth Third Wealth Advisors. “Investors believe the Fed’s resolve will ultimately bring inflation under control, which is a precondition for a durable equity rally.”

The SEC isn’t waiting for clarity with a capital C to give tokenized stocks the go-ahead.

On Thursday, Wall Street’s watchdog issued a five-year order allowing trading venues to offer digital representations of company shares. The move ushers in a 24/7 type of trading that proponents say reduces counterparty risk through faster settlement. It also comes just days after the Senate blocked the Clarity Act, which would have provided a regulatory framework for cryptocurrency. The new rule is “designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards,” SEC Chairman Paul Atkins said.

The “Innovation Exemption,” which has been in the works for more than a year, shows the SEC is willing to set rules that could push crypto-related offerings forward without lawmakers’ buy-in at a time when investors are hungry for digital assets and trading firms are eager to meet their demand. That’s good news for Robinhood and Coinbase, which both offer tokenized stocks overseas and whose own stocks climbed 5% and 6% respectively on Thursday.

AMC v. Robinhood

The SEC move also answers a big question that has had Robinhood CEO Vlad Tenev feuding with theater-chain AMC’s CEO Adam Aron in recent weeks: Do companies get a say over the tokenization of their stocks?

The chief executive showdown on X started when Aron called Robinhood allowing the trading of a token linked to AMC that the movie theater chain hadn’t OK’d “contemptible” and “vile,” among other things. “Your setting up some kind of fictitious synthetic equity market decouples stock token ownership from a company’s ability to control its own capital-raising efforts,” he added. (Tenev fired back and posted a long take on issuer consent.)

The SEC’s exemption doesn’t apply to synthetic tokens issued by third parties, which mimic share prices but don’t actually give you any ownership and are popular outside the US:

• Instead, it says tokenized stocks have to offer holders the same rights and privileges as traditional securities, including dividends and voting rights.
• The trading venues also have to provide issuers of the underlying stocks a 30-day heads-up that they plan to issue a tokenized version as well as the ability to object and block the move.

Exchanges Want In: It’s not just crypto-trading firms that want the green light for tokenized stocks. The New York Stock Exchange and Nasdaq are prepping their platforms for round-the-clock trading, and the SEC already approved Nasdaq’s plan to allow some tokenized stocks and exchange-traded funds back in March.

One hyperscaler’s backup plan is another company’s “generational growth opportunity.”

On Thursday, shares of backup power supply company Generac spiked 18.34% after it agreed to supply some $2.4 billion worth of generators to Amazon’s vast data center empire over the next two years. Generac is just the latest in a growing list of unlikely beneficiaries of AI’s energy gridlock.

Tipping the Hyperscales

The company disclosed in its second-quarter earnings call back in July that it had struck agreements with not one but two leading hyperscalers: A filing with the SEC this week revealed both that the second deal was with Amazon and the agreement’s massive scale.

It’s hardly shocking that the backup power company, whose clientele typically includes healthcare, industrial and residential properties, would venture into the data center game. Backup power is critical at installations for which even momentary power outages can corrupt weeks’ worth of AI training progress and fry critical hardware. Meanwhile, connecting to any traditional power source at all has become a bottleneck for the industry. That places generator companies like Generac at the center of hyperscaler efforts to create decentralized, behind-the-meter micro-grids:

• Surging data center demand will require some $110 billion worth of new power plants through 2030, according to a recent Moody’s estimate, but it now takes an average of five years for utility players to gain grid interconnection, according to the Lawrence Berkeley National Laboratory.
• In its most recent earnings call, Generac said that its data center backlog already totaled $1.6 billion before accounting for the Amazon agreement.

Power Trip-Up: Earlier this year, the company told investors that the data center boom represented a “generational growth opportunity.” But to meet the demand of its new agreements, Generac will have to triple its capacity by next year, Canaccord analyst George Gianarikas wrote in a note to clients on Wednesday. Amazon appears ready to help out. As part of the agreement, an Amazon subsidiary received a warrant to buy up to 1.69 million shares of Generac at $201 a pop, though the full offering is only available if Amazon can fill its shopping cart with $8 billion worth of generators.