Seasonality Strikes: S&P 500 Drops as September Seasonality Takes Hold
Seasonality Strikes: S&P 500 Drops as September Seasonality Takes Hold
- U.S. stocks drop to start September trading, with S&P 500 falling 1% on the first trading day.
- Seasonal performance shows September as the weakest month for equity markets.
- Technical support may help to stave off further losses this month.
U.S. stocks drop to start September as seasonal pressures appear
U.S. equity markets started the month of September in the red, with the S&P 500 (/ESU5) down over 1% through mid-day trading on Tuesday, September 2. The losses extended across the market, dragging on the Nasdaq 100 and Russell 2000 as well.
The sour note to the start of the month follows a positive month for the equity indexes. The S&P 500 rose nearly 2% in August to record a fresh all-time high, an achievement also celebrated by the tech-heavy Nasdaq.
Lofty valuations in the stock market combined with an uncertain economic backdrop are weighing on traders after returning from the U.S. holiday weekend. Traders returned from the weekend to a decision from a U.S. appeals court that ruled President Trump’s tariffs are largely illegal, putting another question mark over U.S. policy.
Still, the economy continues to chug along and is expected to accelerate. The Atlanta Fed GDPNow shows that the economy is set to expand by 3.0% in the third quarter. While inflation pressures remain a concern, the Federal Reserve remains on track to cut interest rates this month, according to the CME’s FedWatch tool.
S&P 500 Seasonality
The drop in equities to start September coincides with a month that has traditionally been unkind to equity markets.
Over the last five years, the S&P 500 has dropped an average of 3.61% in September. That marks the worst monthly performance for the index of the year, surpassing April, the only other month where the S&P 500 has recorded a seasonal decline over the period.
Naturally, volatility expands in September as equity prices drop when examining the same period. The average VIX level for September since 2020 is 21.47, a steep increase from August when the VIX averaged 17.25.
Historically, volatility continues to expand beyond September, with the VIX averaging 24.29 in October. The expansion in volatility into October occurs despite a recovery in equity prices for the month, with the S&P 500 posting an average gain of 2.9% during that month.
Trading S&P 500 seasonality
The S&P 500 was down 1% through mid-day trading on September 2. Seasonally, that would leave another 2.6% to go through the end of the month if we are assuming that the average move since 2020 will come to pass. That would put prices around 6,177 compared to the 6,406 it traded around near the end of the month’s first trading day.
The 50-day simple moving average (SMA) is at 6,357.80 and represents a potential area of support. The S&P 500 hasn’t traded below that SMA since early May. A break below the SMA would likely incite more fear considering that trading below the SMA hasn’t occurred in more than several months.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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