Will This Sluggish September Stock Market Turn Around?

If it walks like a duck and sounds like a duck, then it’s probably a duck.

In investment terms, if it looks like a bad time to invest … and historical data says it’s a bad time to invest … then it’s probably just that.

September has a bad rap for being a horrible month for markets. (I’ll show you why in a second.)

This September hasn’t shaped up any different so far.

The S&P 500 is off by 0.6%, while the Nasdaq also fell 0.6% and the Dow Jones Industrial Average has fallen 0.5%. And markets look rough out of the gate so far on Wednesday.

This was coming out of an August where all three indexes grew by 2.5% or more.

The biggest question for investors is whether this will be just another dogged September or if things will be different this time around.

Today, I’ll examine September’s historical seasonality and consider how 2024 could differ.

Sell In September and Go Away

I know the old investment proverb says to “sell in May and go away,” but the data doesn’t necessarily support that conclusion.

Taking the monthly returns of the S&P 500 going back to 1928, September has the worst return average of any month at -1.2%. According to the data, the index has closed the month of September lower 56% of the time.

Even May is close to flat with a -0.1% average return … and it’s followed by three summer months of strong historical gains.

September 2024 didn’t start any better, with a jobs report showing sluggish growth and weak manufacturing data suggesting the U.S. economy isn’t as strong as the market has priced in.

And the losses this September are across many different sectors — only consumer staples and utilities were up this month, while the other nine sectors of the S&P 500 were in decline.

If you believe the traditional rationale from years past, September’s declines are due to traders returning from vacation, selling their gains and stockpiling their tax losses.

I’ll be quick to point out there is no hard evidence that has ever been the case.

I’d also highlight the fact that, through the first week of September, all three major indexes were up for the year:

Dancin’ In September?

Yes, those are lyrics from Earth, Wind & Fire’s classic “September,” and yes, I am somewhat ashamed…

But this September may break this month’s bad rap.

Here’s why:

Broadening of the market: Big Tech dominated the start of the year, but in August, four other sectors of the market beat tech gains: Consumer Staples (+5.8%), Real Estate (+5.6%), Health Care (+5%) and Utilities (+4.4%). This tells me market gains are starting to broaden out, which is good news for its long-term positive momentum.
More investors remain bullish: According to the most recent survey of investors by the American Association of Individual Investors, 45.3% remained bullish on the broader market as of September 4, 2024, compared to just 24.9% who were bearish. While slightly down from the 51.2% bullish reading the prior week, this is still a stronger sentiment than four weeks ago.
The Federal Reserve cut is coming: The Fed is widely expected to cut its target benchmark interest rate next week. The biggest question is by how much. Investors will welcome any cut … and it will raise expectations of more cuts before the end of the year (more good news for stocks).

What It All Means: There is no guarantee that this September will be any better or worse than previous years.

The things working against another lackluster September are history and a rough start to the month.

However, all three indexes cut their previous week’s losses on Monday, and by my count, the factors leading to a “good” September outweigh those suggesting a “bad” one.

That’s a good sign for what’s ahead.

Safe trading,