To The Moon

September Effect: Potential Safe Haven Stocks Amid Market Volatility

Since 1928, the $S&P 500(.SPX)$   has averaged a 1.1% decline in September. This year, with an election looming and the prospect of a rate-cutting cycle, investor sentiment is more nervous.

The "September effect" appears to be resurfacing, with the S&P 500 down 3.14% month-to-date as of Monday's close, now in the second week of September.

Over the past five years, the S&P 500 has averaged a 4.2% decline in September. However, nine stocks have consistently outperformed the S&P 500 in September, each delivering an average return of over 1%. These stocks may serve as potential safe havens amid market turbulence.

Leading the pack is apparel retailer  $Abercrombie & Fitch(ANF)$  , with an average September return of 6.7%. The stock has surged 285% in the past year and is up 51% year-to-date.

Abercrombie posted robust earnings in late August, with same-store sales up 18% and earnings per share soaring 127% year-over-year. The company also significantly raised its full-year sales forecast and operating margin, though management cautioned about an "increasingly uncertain environment" and offered conservative quarterly guidance. Despite strong results, the stock fell 17% post-earnings, currently trading at $133, a 32% retreat from its May peak of $196.

Wall Street remains optimistic about Abercrombie. $JPMorgan Chase(JPM)$   added the stock to its Analyst Focus List post-earnings, maintaining an Overweight rating and $194 price target. Citi upgraded the stock from Neutral to Buy, keeping a $190 target. Citi sees 10 reasons why "the Abercrombie story is not over," highlighting the recent selloff as an opportunity to own a "unique asset." The bank cites Abercrombie's remarkable turnaround, robust same-store sales, and conservative second-half guidance.

Second on the list is $Dr. Reddy's Laboratories (RDY.US)$, with an average September return of 5.1%. The generic drugmaker hit an all-time high of $84.5 in early August.

Ranking third is logistics and transportation company $Ryder System (R.US)$ , with an average September return of 4.0%. Ryder reached a record high of $145.6 in late August. The company has repurchased shares for 19 consecutive years and offers a high dividend yield.

Notably, four of the nine outperforming stocks are financials: $Fifth Third(FITB)$   , $Reinsurance Group of America(RGA)$  , $PNC Financial Services Group Inc(PNC)$  , and $GAMELANCER GAMING CORP.(WDRGF)$  .

Several factors may contribute to the strong performance of financial stocks:

1. Stable dividends: Financials typically offer steady dividend yields, providing income for investors during market volatility.

2. Low volatility: With stable business operations and revenue, financial stocks can exhibit defensive characteristics during economic slowdowns, making them less volatile compared to cyclical sectors.

3. Reasonable valuations: During market downturns, financial stocks may become more attractively valued, appealing to value investors. Currently, the financial sector's valuation stands at 16 times earnings, the second-lowest among U.S. equity sectors.

Financial stocks have shown robust performance this year, with the S&P Financial Select Sector Index up 19% year-to-date.

According to The Wall Street Journal, Shaniel Ramjee, co-head of the multi-asset team at Pictet Asset Management's London office, said his team has been steadily buying U.S. financial stocks in recent weeks, anticipating a rate cut by the Federal Reserve.

"We think financials are one of the sectors that will benefit from a steepening yield curve, more help from lower rates for consumers, and more activity in the economy if rates are lower," he said.

Year-to-date, nine stocks have shown strong performance, with all but $Sociedad Quimica Y Minera De Chile (SQM.US)$ posting double-digit gains.

However, since September, these stocks have recorded negative returns, with only $PNC Financial Services (PNC.US)$ , $Houlihan Lokey (HLI.US)$ , and $Fifth Third Bancorp (FITB.US)$ outperforming the S&P 500. The question remains whether they can reverse the trend in the remaining days of the month.

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