Here Comes the Worst Month of the Year

by Ryan Detrick, Investment Strategist, LPL Resesarch

The incredible bull market continues, with the S&P 500 Index up to a record 53 new all-time highs before August is over, topping the previous record from 1964.

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“Although this bull market has laughed at nearly all the worry signs in 2021, let’s not forget that September is historically the worst month of the year for stocks,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September.”

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The S&P 500 hasn’t had so much as a 5% correction since last October and with stocks up more than 100% since March 2020, investors should be open to some potential seasonal weakness. The good news is we remain in the camp that stocks will continue to go higher and investors should use any weakness as an opportunity to add to core equity holdings.

Let’s be honest, stocks can’t go up forever. In fact, the S&P 500 is about to be up 7 months in a row, one of the longest monthly win streaks ever.

View enlarged chart.

It is what happens next that has our attention. As the LPL Chart of the Day shows, after 7-month win streaks, the S&P 500 has been higher six months later 13 out of 14 times, with a very impressive 7.8% average return. This reinforces our belief that in the event of a well-deserved pullback, it would be an opportunity to buy at cheaper prices.

View enlarged chart.

With a very highly anticipated Federal Reserve Bank meeting in September, along with continued Delta variant worries, coupled with the fact that stocks haven’t pulled back in a long time, investors should be on the lookout for some seasonal volatility in September. We remain in the camp that any weakness, should it occur, could be short-term and likely be contained in the 5-8% range. This bull market is alive and well and we would view any potential weakness as an opportunity.

For more of our thoughts on today’s markets, please read Poking the Bear, our latest Weekly Market Commentary.

 

 

 

 

 

IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
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