2023 year. Calendar for September. isolated 3d illustration
It’s common knowledge that September has historically been a challenging month for stocks, regardless of the time frame. According to Yardeni Research, since 1928, the S&P 500 has closed higher in September 52 times, more than in any other month. Looking at monthly returns over the last 30 years and five years, equities have performed the worst during September, with an average decline of 0.34% and 2.89% respectively.
September has historically been the worst month for stocks
Even though past performance does not guarantee future results, investors should be prepared for continued market volatility this month.
Also, a close examination of economic indicators and market trends suggests that some strategic investment opportunities may arise this September.
The story of recession seems to be getting blurry
As optimism is cautiously returning to Wall Street, new data shows that fears of an impending recession are diminishing among some S&P 500 companies.
FactSet reports that significantly fewer S&P 500 companies mentioned “recession” during their second-quarter earnings calls than in previous quarters. Only 62 companies cited the term, a 45% decline from the March quarter and the lowest number since the final quarter of 2021.
A recent study of the economic impact of higher rates offers some context that may help explain companies’ new optimism. Much of the Fed’s rate-hike policy has already been felt in the broader economy, according to findings from the Federal Reserve Bank of Chicago. The impact on the labor market will be slow to be felt, with more than half of the total impact on working hours not yet materializing. However, the report’s authors estimate that current policy measures should be enough to bring inflation closer to the Fed’s 2% target by mid-2024 – without a recession.
This could mean that the era of rate hikes is coming to an end, which would likely be a positive development for equities.
Indeed, speculative markets believe the Fed is ready to hold off. There is a 95% chance that the Federal Open Market Committee (FOMC) will keep rates at the current level when it meets its members later this month, according to 30-day Fed funds futures pricing data. There is a strong possibility that the rates will be lower One year from now.
Core inflation is reportedly declining, and this may provide some relief to the Fed. Chair Jerome Powell’s speech at the Jackson Hole symposium last month was well received by markets, indicating that the central bank’s policy will remain data-dependent with the aim of tightening only when necessary.
Signs of resilience in manufacturing and services
The health of the US manufacturing and services sectors, even though it remains at historically low levels, is moving in the right direction, suggesting now may be a good opportunity to buy.
The Institute for Supply Management (ISM) reported that the Services Purchasing Managers’ Index (PMI) increased for the third consecutive month in August. A PMI above 50.0 indicates expansion, and the index rose from 52.7 in July to 54.5 in August.
Service and manufacturing industries are improving due to low inflation
The manufacturing sector, despite showing modest signs of improvement, remained below 50.0 for the 10th consecutive month in August. The PMI stood at 47.6, a slight increase from July’s 46.4 and the highest reading since February, indicating a slowing of the contraction.
Overall, both sectors are showing signs of resilience and adaptability as prices are slowly coming back under control. For investors with an eye on long-term growth prospects, these subtle but positive changes could mark a favorable entry point.
Investment Strategies for September…and Beyond
September is supposed to be a tough month for stocks, but the current economic backdrop suggests this year could be different. Decreased concerns about a recession, signs of a possible change in Fed policy and positive sector trends all point to the potential for strategic investment opportunities.
It is important to consider this from a balanced perspective. Diversification remains important, and investors may consider a mix of asset classes including equities, fixed income, commodities and of course gold to hedge against the ongoing uncertainties.
As always, investors should remain cautious, keeping an eye on inflationary pressures and geopolitical uncertainties, which could add to market volatility. A well-thought-out, data-driven investment strategy can be particularly beneficial in the current environment, providing a way to manage risk and seize new opportunities.
