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Don't sweat September stock swoon?
Stocks historically have not fared well in the ninth month. But the start of fall doesn't always have to mean that stocks will fall.
October is right around the corner. And for investors, that often conjures up scary memories of huge market crashes. But September is actually the worst month historically for stocks. (2008 anyone?) So far, September is living up to its bearish reputation….especially for big tech stocks.
The Nasdaq has tumbled more than 2% already so far this month. The Dow and S&P 500 have each shed a little more than 1%.
There are legitimate reasons to be concerned about the future direction of the market. Inflation is still an issue. and the Federal Reserve may not be done raising interest rates just yet after all. That could put pressure on earnings in the fourth quarter and throughout 2024, which would compress valuations and put a dent in future returns.
But it’s important to remember that the calendar doesn’t determine the next move for stocks. Fundamentals do. Just because stocks often fall in the start of the fall, that doesn’t mean they MUST do so every year.
What’s more, the market volatility of August could set Wall Street up for a nice bull run. It’s worth noting that when stocks are having a good year and slide in August (like they did this year) then the market often has a solid September.
Ryan Detrick, chief market strategist at The Carson Group, has pointed out that in the 10 times since 1954 when stocks were enjoying double-digit percentage gains heading into September but stumbled in August, the S&P 500 has gone up in September 8 out of 10 of those instances. And stocks enjoyed gains from September through the end of December in ALL of those years. The giant September sell-offs have typically occurred in bad years for the market overall, Detrick also noted.
So investors would be far better off paying attention to corporate profits and economic reports instead of worrying about the calendar. If stocks do wind up dropping for the rest of the year, the likely culprits will be earnings, Fed interest rate moves and possible anxiety about the upcoming 2024 presidential election and what the outcome of it might mean for future economic policy.