September Will Present a Challenge for Investors
As we start a new trading month, negative seasonality and a confluence of news confront the market.
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The S&P 500 is at an all-time high as it heads into the weakest month of the year. Since 1950, September is the only month of the year in which the S&P has averaged a negative return. The index is down about 55% of the time and has an average loss of 0.5%. Since 2000, the results have been much worse, with an average loss of 1.7%, which is a full percentage point lower than any other month.
It is important to keep in mind, however, that seasonality is a tendency and not a certainty. There are many exceptions such, as September 2024 when the S&P was up 2%. Still, negative seasonality is a very well-known factor and that can make it self-fulfilling to some extent.
With the indexes near all-time highs following a very powerful rally off the April lows, technical conditions are extended and there has not been any notable corrective action for a while. An additional problem is that there are a host of potential news catalysts that can be used to justify a selloff.
The biggest positive for the market recently has been confidence that the Fed will cut interest rates at its next meeting. The market is currently seeing a 91.8% chance of a quarter-point cut on September 17, but to what extent has that already been priced into the market? Bonds are lower and gold is hitting a new high, which indicates that maybe investors haven’t given up on their worries about inflation and interest rates.
On Friday, jobs news will be the focus and will very likely influence the odds of a Fed move. This is the first report since the surprisingly poor BLS revision of jobs numbers and the firing of the head of the data supervision.
Several other major issues will impact the market this month, including a Supreme Court ruling on tariffs, new Fed members, and negotiations with Congress on the federal budget. So far, the market has handled negative news flow with little concern, but the combination of negative seasonality and overbought technical conditions will make it tougher.
One recent bright spot has been the rotational action into areas of the market outside the Magnificent Seven. The Russell 2000 ETF IWM has been outperforming and there has been a good supply of attractive charts for stock pickers. I’ll be watching to see if we continue to have some hot pockets of speculative action.
We have a poor to start to the month.
At the time of publication, Rev Shark had no positions in any securities mentioned.
