My son crashed hard trying to slalom water ski. We were enjoying the last bit of summer at the lake, and my son decided to attempt to slalom ski after having only skied once before. He planned to kick off a ski and stay up on just one. But time after time, he crashed hard as soon as he kicked his ski off. September stocks know the feeling.
September sure started off rough. Is it seasonal or something else?
Stock trading volume is low during the summer when most Americans take vacations. It seems that when Labor Day ends and everyone is back in the office, everybody starts trading at once. According to FactSet data, September is one of the year’s highest months for trading volume. But higher trading activity often brings about higher stock market volatility.
Stocks had a big summer, even with a steep drawback on August 5, which became Wall Street’s worst day in two years. The Aug. 5 pullback was either investors showing some concern about the economy or just portfolio repositioning. Most media types chalked it up to portfolio repositioning, but when it happened again on September 3, one had to wonder if there were some underlying market concerns.
Bad Month
When stocks fell on the first trading day of September, investors were reminded that September is the market’s worst month historically, according to Yahoo Finance. It is the only month of the year in the last five years, that is historically negative.
The last four Septembers have been especially bad. Here is a refresher on how the S&P 500 has finished the recent September months:
2023: down 5%
2022: down 9%
2021: down 5%
2020: down 4%
The Fed
“This time will be different.” This famous quote might be true in this case. September’s poor record is hard to ignore, but this year, September has the Federal Reserve (Fed) on its side. This month brings what will probably be the start of the Fed interest-rate-cutting cycle when it meets on Sept. 17-18. Most analysts believe the Fed will cut rates two to three times this year and possibly four times next year. Many even think the September rate cut might be as big as a ½ percent, according to the CME FedWatch Tool. I doubt we will see that big of a cut, and if they did, the market might get jumpy thinking the Fed is nervous about the economy, too.
All that to say, it might be a volatile month in stocks. If, in fact, stocks are starting a downtrend before the Fed announcement, then it could be a buying opportunity like it was in 2022. In September 2022, when stocks pulled back 9%, it proved to be a great time to buy stocks at a discount. It was a scary time; inflation was peaking, the Fed was raising interest rates, and Russia had invaded Ukraine. Those who invested in a fund that mirrors the S&P 500 in September 2022 made 20% over the next twelve months and almost 55% since then.
It’s way too early to know if September 2024 will be a good time to invest, as this month might provide extremes. Charles Dickens’s quote in Tale of Two Cities might appropriately describe September 2024: “It was the best of times, it was the worst of times.”
Whatever happens in the next few days, the fact is this month started off in about the worst possible way. Hang onto your skis; it is about to get interesting.
My son wouldn’t give up and eventually stayed up on one ski. He was wobbly, but he successfully slalom skied across the lake. It all went perfectly, well mostly, because his mom was so excited she forgot to push record to video it, much to his frustration. So, the moral of this story is to not give up on this market if it gets difficult because history shows it could be worth it. Just don’t ask my wife to video your success.
Have a blessed week!
Dr. Richard Baker, AIF®, is the CEO and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
