Cash Flow, Seasonality, and the Fed's Market Impact

Today's market is being shaped by cash flow, interest rates, and seasonal trends. Learn why investors are focusing on financial strength, what September could bring, and how to stay focused on long-term goals.

Last Edited by: LPL Research

Last Updated: September 04, 2026

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IN THIS ARTICLE:

Markets have changed a lot over the past few years and continue to evolve. Investors are no longer focused only on which companies can grow the fastest. They are also paying closer attention to which companies are actually generating cash, how higher interest rates may affect the economy, and what could be ahead as we move through a seasonally weaker period for stocks.

While headlines often focus on short-term market moves, these themes below can help explain what is driving investor behavior right now.

Investors Are Looking Beyond Growth

For much of the last decade, companies that delivered rapid growth broadly led the stock market, helped by falling interest rates.

Today, the environment looks different. The AI buildout has continued to grow and interest rates remain higher than they were in the 2010s, and investors have increasingly begun to ask: How much money will these AI companies generate and when will it show up?

That is why companies with strong cash flow have been attracting more attention. Cash flow is simply the money a business has left after paying its expenses and investing in its operations. Companies that consistently generate cash often have greater flexibility to weather economic challenges, invest in growth opportunities, and reward shareholders.

This shift can be seen in technology. Many of the largest technology companies are spending enormous amounts of money building artificial intelligence (AI) infrastructure. Investors generally agree that AI has significant potential, but they also want to see evidence that today's spending will lead to meaningful returns in the future.

September's Reputation and What History Suggests

September has earned a reputation as one of the market's weakest months. Historically, stocks have struggled more during September than during most other months of the year. Volatility also tends to increase amid recurring calendar-driven behaviors such as tax-related selling, mutual fund fiscal year-ends, and buyback windows.

That does not mean investors should expect a major decline every September.

Market history shows that when stocks enter the month with strong momentum and a healthy economic backdrop, performance can be much better than seasonal averages suggest. In other words, the calendar alone rarely determines market results.

For long-term investors, seasonal weakness is best viewed as a reminder that market pullbacks are normal. Short-term swings often create headlines, but they do not necessarily change the long-term outlook.

A New Message from the Federal Reserve

At the recent Jackson Hole economic symposium, Federal Reserve (Fed) officials signaled that inflation remains a concern and that additional work may be needed to keep price pressures under control. Markets responded by increasing expectations that interest rates could remain higher for longer than previously expected.

As a result, short-term bond yields moved higher, the U.S. dollar strengthened, and gold prices declined. Based on the discussion from LPL's Market Signals podcast, upcoming inflation and employment reports will likely play a major role in determining the Fed's next move.

For investors, the key takeaway is simple. Interest rate expectations can change quickly, and markets may react accordingly. Maintaining a diversified portfolio and staying focused on long-term goals remains important, especially during periods of uncertainty.

What This Means for You

Today's market environment is rewarding companies that are generating real cash and managing their businesses efficiently, rather than relying solely on future growth expectations. At the same time, investors may experience more market ups and downs as September's seasonal volatility and uncertainty around future interest rate decisions create short-term noise.

The good news is that the key drivers of long-term investment success have not changed. Staying diversified, focusing on high-quality investments, and keeping your attention on long-term goals can help you navigate periods of market uncertainty. While headlines may focus on month-to-month market swings, keeping a disciplined approach remains one of the most effective ways to stay on track.

 

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CASH FLOW, MARKET SEASONALITY, AND THE FED FAQs

Cash flow helps show how much money a company is actually bringing in after paying its expenses and investing in its business. Unlike earnings, which can be influenced by accounting rules, cash flow provides a clearer picture of a company's financial health and its ability to support future growth.

 

Investors have become more focused on cash flow because interest rates are higher than they were for much of the last decade and corporate America has increased AI-related spending. In this environment, companies that consistently generate cash are often viewed as being in a stronger position to invest in their businesses, navigate economic uncertainty, and create value for shareholders over time. 

September has historically been one of the weakest months of the year for stocks, and market volatility often increases during the month. However, seasonal trends are based on historical patterns and do not predict what will happen in any given year.

 

Investors should remember that market performance is influenced by many factors, including economic growth, corporate earnings, inflation, and interest rates. While a short-term pullback is always possible, long-term investors are generally better served by focusing on their goals and investment strategy rather than trying to react to the calendar. 

The Federal Reserve (Fed) plays a major role in the economy by setting monetary policy and influencing interest rates. Those decisions affect borrowing costs for consumers and businesses, which can have a ripple effect throughout the economy and financial markets.

 

When investors expect interest rates to remain higher for longer, stocks and bonds can react as markets adjust to the new outlook. Recent comments from Fed officials reinforced that inflation remains a key focus, which is why upcoming economic data releases will be closely watched by investors. Understanding the Fed's potential direction and views can help explain many of the market movements investors see in the news. 

Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. ​

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This research material has been prepared by LPL Financial LLC.

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