Welcome to September, when stocks go usually down

Welcome to September. Although given the track record of recent years, perhaps we should say beware, instead: the S&P 500 and the STOXX 600 have lost ground in each of the last 4 Septembers.

And if you’re hoping for respite in fixed income, there hasn’t been any there, either. In fact, Bloomberg’s global bond aggregate is down in each of the last 7 Septembers. So any gains this month would certainly be bucking the trend.

Since 1945, the S&P 500 averaged a decline of 0.78% in September. But this negative performance has been exacerbated over the past decade, where the S&P 500’s median performance in September was -2.6%, per Bespoke Investment Group. Only 3 out of 12 months have averaged declines, and September is by far the worst of the three. For the past four Septembers, S&P 500 was down 4.9%, 9.3%, 4.8%, and 3.9%. 

While bulls pushed August into positive territory with a 1.3% gain, “seasonal weakness in September could spoil the momentum,” wrote Adam Turnquist, chief technical strategist for LPL Financial.

One key event this month is the Federal Reserve meeting on September 18, where US monetary policymakers are expected to join many other developed-market central banks in cutting rates. This coincides with the midway point of September, which, historically, is a time when losses begin to crescendo. 

The month is starting just the way you’d expect, given history: S&P 500 is off as much as 1.6% on Tuesday morning. The last time S&P 500 was positive on the first trading day after Labor Day was 2016.

While everyone is watching seasonality, beneath the hood of the stock market is the big battle: whether tech stocks can carry the rest of the market, or if the world falls off Atlas’ shoulders.

Michael Purves, the founder of Tallbacken Capital Advisors, said that “it’s the elections, not the Fed meeting, which gets our focus.” He noted that if the stocks of the big tech companies couldn’t lead the market, then the overall market could be subject to further volatility due to the election. 

Jim Reid, global head of macro research at Deutsche Bank added that the end of September will mark a five-week countdown to the US election, and close races usually lead to lower stock markets before a rally. 

The final week of August showed how Magnificent Seven stocks dragged the S&P 500 lower, even the majority of S&P 500 stocks went up. Nvidia’s earnings report, which disappointed relative to high expectations, will “contribute to the whipsaws on the index level and delay re-entry to all-time high territory,” according to John Kolovos, the head of technical strategy at Macro Risk Advisors.