Just four weeks ago, the stock market seemed unstoppable. Seven straight months of gains had left the S&P 500 up 21% for the year, companies posted record profits and economists predicted the fastest growth in decades.

That all changed in September.

The S&P 500 suffered its worst monthly decline since the start of the pandemic, as investors dumped tech stocks, small businesses and industrials amid a confusing mix of signals regarding the next chapter in the pandemic recovery.

Now, with the fourth quarter underway, slowing growth, rising inflation, supply chain grunts and the lingering threat of the coronavirus all threaten to erode investor confidence and crush markets. corporate profits – just as the sinkhole policy in Washington nearly dashed hopes for further fiscal stimulus. Above the fray is the Federal Reserve, which has indicated it is on the verge of cutting money printing programs that have fueled the market rally for the past 18 months.

In short, despite the improvement in the public health situation, some investors now expect the last three months of 2021 to be the busiest since the pandemic collapsed the market in early 2020.

“We have had tremendous support and stimulus from the government,” said Matt Quinlan, portfolio manager of the $ 3.5 billion Franklin Equity Income Fund. “There’s an element of, you know, ‘What’s going on from here? “”

All of these questions have been brewing for months, but they didn’t seem to bother investors until the end of September. Then came the signal from the Fed that it was almost certain to start cutting – or shrinking – the $ 120 billion in new money it had been pouring into markets each month since the start of the pandemic.

This money has been the main catalyst for the explosive rise in the market even as the pandemic has disrupted most facets of our daily lives.

“You’ve had a market that has been heavily reliant on this bowl of overflowing stimulus,” said Edward Moya, senior market analyst at Oanda, a foreign exchange and currency brokerage firm. “I think the market is really going to struggle once they lose their fix.”

September started with mixed results, but the Fed’s announcement turned what had been a slight decline into a rout. The S&P 500 ended September down 4.8%, the benchmark’s worst monthly performance since March 2020.

In recent times, the market seems increasingly sensitive to one-off events that investors may have overlooked as stocks steadily rose. The S&P 500 fell on Monday, falling 1.3% as major tech stocks struggled. The prospect of increasing regulatory oversight Seemed at the heart of the crisis: Facebook fell 4.9% after Frances Haugen, a former employee who is due to testify before Congress on Tuesday, appeared on “60 Minutes” to discuss the social media giant’s business practices.

“Facebook, time and time again, has shown it prefers profit over security,” Ms Haugen said on the show.

Other big tech companies – which have considerable influence on the movement of the broad index – also fell. Google’s parent company Alphabet fell about 2%. Apple and Microsoft both fell more than 2%.

Prior to the onset of such volatility in September, the summer had been remarkably fluid.

Stocks appeared to be climbing to highs almost every day, even as the Delta variant of the coronavirus complicated the recovery around the world and economists began to rapidly lower forecasts for the best economic growth in decades. There were 53 new highs through the end of August, the highest at this time of year since 1964.

Company updates on corporate earnings, seen as a key driver of stocks, have been a source of investor confidence. The second quarter earnings reports – released from July – were spectacular. Almost 90 percent of companies released better numbers than Wall Street analysts had expected, a boon that prompted even more confident statements from business executives. This prompted analysts who underestimated growth in the second quarter to raise their expectations for the third quarter – and the following year – even higher.

These so-called forward earnings revisions are just the best guessing of Wall Street analysts who are employed to track big companies, but they are hugely influential, helping to justify the prices investors are willing to pay for stocks.

“It had been a big tailwind behind the market,” said Liz Ann Sonders, chief investment strategist at Charles Schwab, of rising earnings expectations.

But in recent weeks, analysts have started to quickly lower their earnings expectations. Some of the first corporate results that were released – before much of the reporting season began later this month – were greeted as disasters.

Quarterly earnings reported by FedEx on Sept. 21 fell 10%, much worse than Wall Street’s expectations, causing its shares to fall 13% over the following days. Bed Bath & Beyond fell more than 20% after posting disappointing results on Thursday.

The culprit behind all this corporate carnage is the same: rising costs eating away at profit margins.

FedEx executives said labor shortages cost the company $ 450 million in the quarter.

“The tough job market had the biggest effect on our results,” FedEx CFO Mike Lenz told analysts during a discussion of its results.

That same dynamic, along with declining government spending as pandemic relief programs run out of steam, appear to be slowing the economy. Since June, economists have downgraded their growth estimates for 2021 gross domestic product from 6.5% to 6.0%, which would still be the best year since 1984. GDP growth is a key driver of revenue growth for large companies, so analysts now believe companies are likely to post lower sales figures as they face rising costs.

“There is the potential for an earnings recession, which means you have a few quarters of negative earnings growth,” said Mike Wilson, chief U.S. equities strategist at Morgan Stanley, who believes the sell-off could continue until at the end of the year. “The risk of that happening is increasing. “

Of course, jokers could turn the market upside down. Positive news about Covid treatments or cases can spark excitement, just as Merck’s announcement of an antiviral pill to treat Covid-19 did on Friday. The same could be done in Washington with an agreement on increased spending, which could offset slower growth.

Mr Wilson also said he was closely monitoring the behavior of retail investors. The millions of individual traders who have flooded the stock market over the past year have helped keep stocks higher. Market meltdowns met with a rush of traders eager to “buy the downside” – but that was not the case in September.

Katie Melanson, who works in insurance and lives outside Seattle, has seen her business earnings for the past few years drop to $ 12,000 from around $ 20,000. And she’s not buying yet.

“I just hold it in cash,” Ms. Melanson, 27, said. “I think there is still a little left to drop.”

Last year, she said, she saw gains of around 56% on her brokerage account. “It was obviously great when everything was going up, up, up, “ Mrs. Melanson said. “It’s definitely a bummer to see it go down.”

Morgan Stanley’s Mr Wilson thinks these new investors’ reaction to the disappointment could help determine how quickly the market is turning around.

“We have a lot of new participants over the past year due to Covid and people who are at home and have money in their pockets,” he said. “They learn, like all of us, that the markets go up and down. “