Wealth managers are wrapping up their summer and getting ready for the historically choppy trading season that starts in September.
Summer is almost over. September is almost here and the Wall Street workweek will return to normal. Sigh.
Then again, the “September Effect” will also be arriving and that means financial advisors better get ready for some anxious calls from clients.
The so-called September Effect refers to the historically weak stock market performance often observed during the month of September. The S&P 500 has, on average, posted negative returns in September since 1950, a phenomenon attributed to institutional investor behavior, fiscal year-end activities, seasonal market psychology and a few notable historical events such as the collapse of Lehman Brothers in 2008.
September has delivered the lowest average monthly returns with some analyses showing a decline of about 0.5% to 0.7% on average, making it the year’s worst performing month.
Tim Holland, chief investment officer at Orion, is respectful of market history and the September effect, noting that while markets go up much more than they go down, there is often a seasonal dynamic to equity returns.
“I think it is less important that investors believe or do not believe in the September effect – or the January effect or “Sell in May and go away” – but are aware of such patterns and how those patterns might impact investor sentiment and investor behavior short-term,” Holland said.
Despite his respect for the seasonality of markets, he has no plans to tweak client portfolios as we head into September.
“We are comfortable with how the portfolios that we are responsible for are allocated today, including our neutral weight to US equities, and we remain cautiously optimistic on US markets as we move into year-end, encouraged by better than expected Q2 earnings results, the likely stimulative impact of the One Big Beautiful Bill Act and greater clarity concerning trade and tariff policy,” Holland said.
Elsewhere, Stephen Kolano, chief investment officer at Integrated Partners, won’t argue with the data that says September, on average, tends to be a negative month for the S&P 500. But like Holland, he is not repositioning portfolios ahead of September. In his opinion, the time horizon of one month is much too short in relation to long term financial goals and disciplined investing.
Additionally, he notes that while September historically has been a tough month for the S&P 500, the historical data also points to October through December being a seasonally strong period of the year for the S&P 500. And it is a period that leads into the proverbial “Santa Claus Rally” often driven by the pick-up in consumer spending associated with holiday shopping.
Tom Graff, chief investment officer at Facet, however, rejects the idea of the September effect entirely.
“It is certainly true that some big events have happened in September, such as the Lehman bankruptcy and 9/11. If you just look at how often September is negative versus other months, there’s no significant difference,” Graff said.
A September to remember?
Whether or not one believes in the September effect, it’s hard to deny that this coming September is shaping up to be one to remember.
“Market volatility could be elevated as we move into and through September for a few reasons, including that US equities largely trade at higher-than-average multiples; if the expected rate cut at the Fed’s September meeting is called into question; uncertainty around the Fed’s makeup, including the President’s effort to fire Fed Governor Lisa Cook and a still unsettled geo-political construct,” Holland said.
Kolano also expects volatility to pick up in the coming month given the September 17th Fed meeting with a backdrop of core inflation seemingly on the rise. Moreover, he believes the further implementation of tariffs and the dwindling of inventory ahead of the holiday season will add to market uncertainty and angst.
“Focus on the labor market potentially also adds to a sense of uncertainty given the last few non-farm payroll reports and now a new head of the BLS with a possibility of a pause in the data being mentioned. Should that occur we would expect volatility to pick up as well,” Kolano said.
And while he may not be sold on the September effect as a true market influencer, Facet’s Graff does think there’s the potential for a lot of volatility this September.
September shake-up?
“The August jobs report will be crucial. It will either confirm the weakness we saw in the July report, or it will reverse that narrative. Either way, it will make for a lot of volatility,” Graff said.
Additionally, Graff believes Powell’s messaging in the wake of the Fed’s likely September rate cut will matter greatly for the market’s stability.
And then of course he will be watching to see if – and how – President Trump shakes things up for market participants.
“We’ll continue to have the White House contributing to volatility, as Trump’s attempt to fire Lisa Cook illustrates,” Graff said.