U.S. stocks closed out August on a down note, but still booked a solid 1.9% gain for the month, powered by stronger-than-expected second-quarter earnings, megacap tech gains and bets on near-term interest rate cuts from the Federal Reserve.
The market's impressive summer rally has the benchmark poised to attack what is historically the weakest month of the year for stocks, according to Adam Turnquist, chief technical strategist at LPL Financial.
Over the past 75 years, the S&P 500 has delivered an average return of around -0.7% over the month of September. By contrast, the index averages a monthly gain of around 0.6% over all months.
However, the S&P 500 not only reclaimed its all-time high on Thursday, but it had traded north of its 200-day moving average, a key performance metric, for more than three months.
"The trend is your friend when it comes to September," Turnquist said in a note published Thursday. "And when accounting for momentum and trend, which we believe is much-needed context, September doesn't look so bad."
Turnquist notes that the S&P 500 typically gains around 1.3%, around twice its normal average, when the benchmark is above its 200-day moving average heading into the start of the month.
Momentum also plays a key role in the overall monthly performance, with the S&P 500 returning an average gain of 3.2% when it closes out the month in the green. Finishing in the red flips that average to a loss of 3.8%.
One caveat to the positive trend stocks are carrying into September, however, could paradoxically be linked to the low levels of market volatility.
The Cboe Group's VIX index, the market's go-to gauge, is trading at the lowest levels of the year and has fallen around 73% from its early April peak. At the same time, the S&P 500 has rallied close to 30%.
This happy confluence of events may not continue. "The VIX has historically advanced going into the fall, with a high-water mark for the year typically reached in late September or early October," Turnquist said.
September certainly has embedded headline risk, with the Bureau of Labor Statistics posting its August jobs report on Friday Sept. 5, and revisions to prior estimates due on Sept. 9.
Last year, the BLS's review ultimately resulted in a 598,000 markdown in jobs created in the 12 months ending in March 2024. The original reduction estimate, however, was 818,000.
Later that week, on Sept. 11, the BLS will publish its August inflation report, which is expected to reflect at least some of President Donald Trump's new tariff policies implemented earlier this month.
Trump is also likely to hear the verdict in two separate court cases challenging his right to impose tariffs using the International Emergency Economic Powers Act.
The Federal Reserve, meanwhile, will publish its latest interest rate decision, alongside fresh growth, inflation, and employment forecasts, on Sept. 17.
"Considering the relatively low starting point of the so-called fear gauge right now, we don't think it is a bold call to suggest there is upside risk to the VIX, especially given the macro backdrop, looming event risk over the next month," Turnquist noted.
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