Friday, 31 Aug 2012 07:52 AM

By Forrest Jones

Stock markets will roil more than normal this September, a typically volatile month anyway, as home-grown and overseas uncertainty will send stocks swinging up and down all month, experts say.

The European debt crisis continues to threaten global recovery, while China continues to steer its economy back to faster growth rates and avoid a hard landing in the process.

Meanwhile in the United States, the economy continues to putter along and investors will buy and sell on expectations that the Federal Reserve will stimulate the economy with easing tools, which send stock prices rising as a side effect.
Add to that, the nation goes to the polls in November. And at the end of the year, tax breaks including the Bush-era tax cuts are scheduled to expire while preprogrammed cuts to public spending kick in, a combination known as a "fiscal cliff" that could send the country sliding into recession next year if left unchecked by Congress.

“My gut is we will see progress, in particular on the European front, and that it continues down the path of triaging the sovereign debt crisis but still nothing new that has it recede completely,” said Mark Luschini, chief investment strategist at Janney Montgomery, according to CNBC.

“So there’s still the opportunity for a market riot before it’s all said and done.”

Meanwhile, the Fed holds a monetary policy meeting Sept. 12-13 and many investors have priced in the possibility the U.S. central bank will stimulate the economy via a third round of quantitative easing, under which the Fed buys assets held by banks, pumping them full of liquidity to encourage investing and hiring.

Fed officials have said they will stimulate the economy if it doesn't show marked improvements though they have stopped short of telegraphing specific plans.

The Fed has also said conditions meriting exceptionally low interest rates will stick around through 2014 though some say the Fed could jolt the economy merely by tweaking such language.

“We think the Fed will extend the guidance on rates to 2015,” said Bruce Kasman, chief economist at JPMorgan, according to CNBC.

Atlanta Fed President Dennis Lockhart told the network that further easing will be likely if the economy doesn't show noted improvement.

"I think it's a close call really. If we were to see deterioration from this point and let's say a persistence of job growth numbers that were well below 100,000 a month or if we were to see signs of disinflation that could signal the onset of deflation, then there wouldn't be much of a question about policy," Lockhart said.

The economy added a net 163,000 jobs in July, 64,000 jobs in June and 87,000 in May, according to the Bureau of Labor Statistics.

Many market participants blame a tepid economy for the difficulty in setting monetary policy.

While unemployment rates and growth remain weak, the economy is expanding and showing some signs of life, leaving policymakers in limbo.

"Growth is neither strong enough for [Fed Chairman Ben] Bernanke to take any additional easing off the table, but it is hardly weak enough to force him to announce new actions," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa., according to Reuters.

The economy grew 1.7 percent in the second quarter, according to revised figures from the Commerce Department, up from an initial estimate of 1.5 percent.

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