Wake Me Up When September Ends
One of the historical realities of the stock market is that it typically has performed poorest during the month of September. The September Effect is a worldwide phenomenon; it doesn’t only affect U.S. markets.
A reason could be that most mutual funds cash in their holdings to harvest tax losses. Another particular theory points to the fact the summer months usually have lightly traded volumes, as a good number of investors usually take vacation time and refrain from actively trading their portfolios during this downtime. Once the fall season begins and these vacationing investors return to work, they exit positions they had been planning on selling. When this occurs, the market experiences increased selling pressure and, thus, an overall decline.
Additionally, many mutual funds end their fiscal year-end in September. Mutual fund managers, on average, typically sell losing positions before year-end, and this trend is another possible explanation for the market’s poor performance during September.
From our friends at Bespoke:
“So far this September we’ve seen inflation numbers that were stronger than expected with the headline rising 0.1% while the core reading was double expectations. Markets were positioned for a weaker print, so the strong number completely reversed (and then some) the positive tone in equity futures. It’s hard to remember a time when an 8:30 number caused such a sharp and near-instantaneous reversal in futures. After official numbers like these, it’s impossible to say that inflation isn’t a problem anymore, but at the same time, it doesn’t change the fact that the pile of secondary indicators showing softening inflation pressures from peaks just a few months ago has really started to pile up.
Just like inflation, breadth has gone from one extreme to the other but in a much tighter timeframe. Coming off the June lows, we saw extremely positive breadth in the S&P 500. Then, towards the tail end of the late summer sell-off, breadth turned extremely negative. The last four trading days, however, have seen breadth reverse again with four straight days of net positive readings in excess of +250 and two positive ‘all or nothing days’ (days where S&P 500 net daily breadth reading comes above +400 or below -400). Long story short. It’s been a broad rally.”
“All eleven sectors have turned in positive returns over the last five trading days (which includes the Friday before Labor Day). Materials and Consumer Discretionary have led the stampede with gains of just under 5% while Financials aren’t far behind rallying by 3.65%. Consumer Staples is the only sector up less than 1% and one of just three sectors still below its 50-DMA. The only two other sectors below that level are Communications Services and Technology. They are also both the only sectors down over 20% YTD. Given its size in the market, Technology is usually the sector that leads the ship, but it is nice to see that the broader market can rally even if that sector underperforms.”
Looking ahead, officials are also growing concerned about how the global fight to tame inflation could be thwarted by a looming energy crisis in Europe, amid Russian President Vladimir Putin’s threats to force a bleak winter on the continent. And even though the U.S. labor market remains extremely strong and consumer confidence has ticked back up in recent weeks, the economic recovery remains fragile for many Americans.
Meanwhile, we are already looking ahead to the holidays and aren’t the only ones. September may have just begun, but it seems Green Day‘s already counting down the day till Christmas. The rockers posted a viral TikTok mashing up their hit “Wake Me Up When September Ends” with Mariah Carey‘s “All I Want for Christmas Is You.” It’s no secret at Meridian that I love Christmas and will take this as a sign that it’s okay to start listening to holiday music.