Investors might want to prepare for a bumpy ride as we enter September, which is historically the worst month for the U.S. stock market.
Data shows that the benchmark S&P 500 index has generated an average monthly decline of 1.2% during September and finished the month higher only 44% of the time dating back to the market crash of 1929.
The blue-chip Dow Jones Industrial Average and technology-laden Nasdaq Composite indices have not fared much better than the S&P 500 during September.
The Dow and Nasdaq have declined an average of 1.1% and 0.9%, respectively, in September, with the Dow recording a positive return only 41% of the time since 1897.
This year, U.S. equities are entering September following volatile trading in August. The S&P 500 index rallied to close out August after recording its worst day in two years on Aug. 5.
Analysts attribute September’s poor market performance to factors that include the return of traders from summer vacation, who then spend most of the month adjusting their portfolios.
Data shows that September is typically the second-highest month for trading volumes of the entire year as traders return from vacation and re-evaluate their stock holdings heading into fall.
By contrast, July and August tend to see the lowest number of shares changing hands as traders and hedge fund managers take the summer months off.
However, in notes to clients and market commentary, some analysts are warning that the stock market could be particularly volatile this September owing to two factors.
The first is that the U.S. Federal Reserve is widely expected to undertake its first interest rate cut in four years at its next policy meeting on Sept. 18.
Secondly, the U.S. presidential election scheduled for this autumn is expected to kick into high gear now that Labour Day has passed.
The S&P 500’s historical performance during election years suggests that stocks could experience a volatile period leading up to when votes are cast on Nov. 5.
So far in 2024, the benchmark S&P 500 index has risen 19%, while the Nasdaq Composite is up 20% and the Dow has gained 10%.
