September is historically the year's worst month for S&P 500, but a strong August can improve the odds

This seasonality factor may imply the strong run up in US equities this year may take a pause owing to valuations, tariff-related development, or if the US Federal Reserve's meeting scheduled mid-month disappoints investors.

Wall Street has stepped into a month that's historically been the worst for the year, and while past trends cannot be considered as predictive, data shows the S&P 500 has fallen by an average of 1.2 percent during September since 1928.

The S&P 500 has seen negative returns in September on 55 percent of occasions since 1928, showed a recent analysis by RBC Wealth Management. Of the 40 worst monthly selloffs on Wall Street, as many as nine have occurred in September, followed by October with six. In fact, the returns in September during the last four years have ranged between negative 3.9 percent during the pandemic year of 2020 to a 9.3 percent selloff in 2022.

The September struggle has been a trend among other major markets, too, with the FTSE All-Share and Hang Seng too having suffered a one percent on an average during the month, since 1970.

This seasonality factor may imply the strong run up in US equities this year may take a pause owing to valuations, tariff-related development, or if the US Federal Reserve's meeting scheduled mid-month disappoints investors.

Jeffrey Hirsch, editor of the Stock Trader’s Almanac recently posted on his blog that since 1950, September has been the worst month of the year for Dow Jones and S&P 500. "Dow Jones, S&P 500, Nasdaq, Russell 1000 and 2000 have been down seven of the last eleven Septembers and four of the last five. Average losses over the last eleven years range from –1.2 percent by Dow Jones to –2.4 percent from Nasdaq and Russell 2000," Hirsch wrote on August 27.

This year, there is a sliver of solace, Hirsch added, as during the year after a US election, September’s overall rank 'improves modestly in post-election years' going back to 1953.

Morningstar said in an analysis on September 2 said that the seasonal weakness 'usually fades in September', when the US stock market trends higher in August. Going into this September, the S&P 500 has seen a gain of 2 percent in August, and a 10 percent rise since the start of the year. This has also come on the back of the optimism that the US Federal Reserve may be cut interest rates for the first time this year.

The Morningstar note cited FactSet data to state that the 200-Day Moving Average is a key indicator of the overall long-term trend. The S&P 500 has managed to hold above its 200-DMA stepping into September, which also aligns with a more than fair chance of a positive return for the month. "Since 1950, when the S&P 500 is above its 200-day moving average going into September, the average price return for the month jumps to 1.3 percent, with 60 percent of occurrences producing positive results," the Morningstar note quoted Adam Turnquist, chief technical strategist at LPL Financial.

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