ORLANDO, Florida, Sept 2 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Stock markets around the world slumped on Tuesday while bond

yields rose and gold hit a new high, as investors moved into

"stagflation" trades against a backdrop of rising worries over

tariffs, inflation and deteriorating government finances.

More on that below. In my column today, I look at the

so-called "September effect" in U.S. and other stock markets.

History shows September is by far the worst month of the year

for equities - will this year be any different?

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. European bond yields at multi-year highs on

fiscal

jitters, stocks stumble

2. Gold hits record high over $3,500 per ounce, as

focus

turns to payrolls data

3. Fed at a potential pivot point on jobs as

storylines

diverge

4. Tariff challenge thickens market fog and

confusion: Mike

Dolan

5. Japanese investors are leaving the reflation

trade to

foreigners

Today's Key Market Moves

* STOCKS: Wall Street indexes end between 0.55% and

0.8%

lower, Europe falls much more, Asia not as much.

* SHARES/SECTORS: U.S. real estate sector slumps

1.7%,

biggest fall in a month. Nvidia shares lowest since July 23, off

8% since Q2 results, Kraft Heinz shares tumble 7% as company

says it will split.

* FX: Dollar rallies broadly, dollar index +0.6%.

Sterling

slumps 1.1%, biggest decliner across global FX today, as UK

fiscal fears snowball.

* BONDS: Long-dated yields spike, curves steepen. UK

30-year gilt yield above 5.70% for first time since 1998, French

equivalent the highest since 2009.

* COMMODITIES: Gold leaps to record high of

$3,540/oz.

Today's Talking Points:

* Long bond blues

Debt and deficit worries are intensifying, and no major

economy is immune. Japan's 30-year yield touched record highs

last week and now Europe is in the spotlight - Britain's 30-year

yield is the highest since 1998, and France's the highest since

2009. Fiscal dominance?

The UK sold a record amount of 10-year bonds on Tuesday but

paid the highest price since 2008. Britain has heavy borrowing

needs, slow growth and the highest inflation in the G7. And

France won't get its fiscal house in order any time soon as the

government faces collapse, which would force snap elections.

* Gold glitters

Gold rose on Tuesday for the sixth day in a row, its

longest winning streak in a year. It has risen 6% in that

period, and today posted a new high of $3,540 an ounce. Is this

portfolio reallocation, a dovish Fed trade, or flight to safety?

It's probably all of the above, with the safe-haven element

figuring more prominently in investors' recent thinking. Then

there's inflation. Tariff-driven price hikes combined with loose

fiscal policy in many major economies are fueling inflation

fears and driving up long bond yields. A perfect storm for gold.

* Tariff-ic

Just when much of the uncertainty around Washington's

tariffs had died down, a U.S. federal appeals court ruled on

Friday that most of them are illegal. They remain in place and

President Donald Trump said the administration will file an

appeal with the Supreme Court on Wednesday and request a quick

decision.

But it's a headache investors could do without as the worst

month of the year for stocks gets underway. Figures on Tuesday

showed U.S. manufacturing contracted for a sixth straight month

in August, and from a global viewpoint, pictures of China's Xi

Jinping, Russia's Vladimir Putin and India's Narendra Modi

smiling together in Beijing on Monday won't have been lost on

investors either.

Anxious Wall Street braces for jumbo 'September effect'

Data going back decades shows that, on average, September is

the worst month for U.S. stocks - and by a considerable margin.

So should investors brace for another bumpy ride this year?

Almost certainly, and not just because of the "September

effect."

If the market saying "Sell in May and go away" had any

validity, September would be a bumper month, with investors

returning from their summer holidays eager to buy back stocks

that, presumably, had become cheaper since Memorial Day.

But history suggests the opposite.

Since 1950, the S&P 500's average return in the month of

September is -0.68%, according to Carson Group's Ryan Detrick.

If you round to one decimal place, September is the only month

with an average negative return in the last 75 years.

And there have been more "down" than "up" Septembers over

this period. The S&P 500 has only posted positive returns in

September 44% of the time since 1950, the lowest positivity rate

for any calendar month and the only one below 50%.

And the performance appears to be getting worse. In the last

decade, the S&P 500's average September return has been near

-2%.

TOTAL OUTLIER

There is no obvious explanation for those seasonal factors.

Some analysts point to the looming fiscal year-end, as fund

managers may seek to dump their worst-performing stocks. Others

say tax-related selling is a factor, again because fund managers

are shedding their losing positions, this time to limit or

offset capital gains.

Investor psychology could also be at play. Investors, having

experienced decades of lousy Septembers, may return from their

summer holidays expecting a tough month. This caution can turn

into pessimism, which can lead to selling, resulting in a

self-fulfilling prophecy.

However dubious these explanations may be, the numbers don't

lie. For much of the last century, September has been the

cruelest month for global equity investors.

EYES WIDE OPEN

The stage is set for a particularly rocky September this

year.

Wall Street's main indexes are at or near record highs,

valuations are getting stretched, especially in the tech sector,

and market concentration has never been greater.

True, momentum appears to be on the bulls' side. The S&P 500

and Nasdaq have been up for four and five consecutive months,

respectively. And as the second-quarter earnings season wraps

up, nearly 80% of companies have reported profit and revenue

above analysts' estimates, compared with long-term averages of

67% and 62%, respectively, according to LSEG data.

On top of that, investors can likely expect a Federal

Reserve rate cut on September 17, if rates futures market

pricing is accurate.

But all of that is already "in the price," to use traders'

parlance. And Wall Street's momentum is slowing as monthly gains

have steadily diminished over the summer, especially for the

Nasdaq, which rose 1.6% in August compared with 9.6% in May.

What happens next will likely largely depend - like most

things in markets this year - on what happens in the technology

sector. Tech stocks are by some valuation metrics the most

expensive they have been since the dotcom bubble burst 25 years

ago.

Investors appear to have noticed, as they have recently

started rotating out of tech and into cheaper small caps. Given

the record-high market concentration in this sector, a

continuation of this trend could weigh heavily on the broader

market.

So this September could be volatile, at the very least. Past

results are no guarantee of future performance, of course. But

caution is warranted. As Porter Collins, co-founder of Seawolf

Capital, recently posted on X, when markets are this extended,

an "eyes wide open approach" is advisable. With so many

potential catalysts for a correction looming this September,

investors would be wise not to look away.

What could move markets tomorrow?

* Australia GDP (Q2)

* Reserve Bank of Australia Governor Michele Bullock speaks

* South Korea GDP (Q2, revised)

* UK PMI (August, final)

* Bank of England's Sarah Breeden and Catherine Mann speak

at

separate events

* European Central Bank President Christine Lagarde speaks

* Euro zone PMI (August, final)

* Euro zone PPI inflation (July)

* U.S. durable goods (July)

* U.S. JOLTS job openings (July)

* U.S. Chicago PMI (August)

* Federal Reserve officials scheduled to speak include St.

Louis

Fed President Alberto Musalem and Minneapolis Fed President Neel

Kashkari

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