Is September Bad for Stocks?

Week in Review

Stocks ended the week on a positive note, buoyed by a strong jobs report on Friday. They have tallied solid gains heading into the long weekend.

July's employment data show signs of economic cooling, as both job openings and the number of people quitting their jobs declined for the third month in a row. According to the U.S. Bureau of Labor Statistics' Job Openings and Labor Turnover Summary, job openings totaled 8.8 million on the last business day of the month, a drop of 338,000. This was lower than anticipated.

The latest employment data could be a sign of a reversal in policy of the Federal Reserve's benchmark interest rate, which would be a positive for stocks. A lower fed future funds rate would stimulate economic activity and could provide a boost to the stock market, as it would lead to lower borrowing costs for businesses and consumers, potentially encouraging increased investment and consumer spending. This could lead to higher corporate earnings, in turn pushing up stock prices.

August ADP private payrolls grew by 177K, slower than consensus for 200K and a notable deceleration from July's upwardly revised 371K pace (was 324K). Service providers continued to provide the bulk of the job growth though a notable slowdown in hospitality hiring. Trade, transportation, education, health services among the stronger areas.

On Friday US payrolls rose by 187k jobs, above the expected 170. However, unemployment rose to 3.8% from 3.5%. How could this happen? Labor participation increased meaning more people came back into the labor market. Who is driving people back into the labor market? Retirees and mothers on the prospect of higher wages against higher prices.

The August jobs data released by the Federal Reserve supports its effort to slow the economy and tamp down inflation. Job gains were plentiful at the same time that wages showed healthy but not rapid growth; more people also entered the workforce to look for work. This all aligns with the Fed's goal of a strong economy without overheating. We believe this makes the case for a Fed rate hike pause this September.

Is September Bad for Stocks?

The month of September has long been feared by investors alike, as history suggests this year could be a different story. The S&P 500 has seen a three-year losing streak in the past, from 2014 to 2016, only to follow with a three-year winning streak. An even more encouraging sign is when the S&P 500 posts a gain of 10-20% through August, it has averaged a gain of 7.6% in the following months, according to data from Bank of America. While certainly not a prediction, if this occurred, the S&P 500 could close the year at an all-time high near 4850.

One reason September gets a bad wrap as a terrible month for stocks is because both 9/11 and the collapse of Lehman Brothers 7 years later both occurred in the month of September. These two significant events artificially make September look worse in historical averages.

Moreover, while the average return for September is negative, the median return for that month has turned positive. This is because the median limits the impact of extreme outcomes mentioned above.

Wall Street has further expressed optimism for the remainder of the year, as S&P 500 earnings are expected to drop only slightly by 0.1% for the third quarter, before rising 9.1% in the fourth, and 12% in 2024. This due to increases in profit margin expectations.

Economic & Earnings Calendar

The U.S. stock and bond markets will be closed on Monday for Labor Day, but investors will return the following week with a busy schedule of corporate earnings reports and analyst meetings, plus the latest economic data.

On Tuesday, Zscaler and Gitlab will report their earnings, followed by Kroger's on Friday. Meanwhile, Danaher and Intuit will be hosting investor days on Wednesday, with First Solar taking their turn on Thursday. Highlighting the economic-data for the week will be the Institute for Supply Management's Services Purchasing Managers' Index for August, estimated to remain in expansionary territory at roughly the same level as the July reading on Wednesday. Additionally, the Federal Reserve will publish its beige book report on current economic conditions across the U.S. on the same day.

Additional data for the week will include the Department of Labor's initial jobless claims on Thursday and the Fed's household net worth statistics on Friday.

Chart of the Week: Golf course popularity

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fancy title and a briefcase full of spreadsheets, doesn't mean they know what they're doing.