By Ben Norris, Securities Research Analyst, Associate Vice President
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There are countless adages for financial markets – a rising tide lifts all boats, sell in May and go away, buy the rumor sell the news, everybody is a genius in a bull market, don’t fight the Fed, Santa Claus rally — I could go on. Some of these sayings have value in the fact that they’re based on common sense, while others are more for investor entertainment. Now that we’re over halfway through September, I’m proposing a new adage “Wake Me Up When September Ends,” which is the title of a song from Green Day’s 2004 album American Idiot. This year, market historians have been eager to point out that September is historically the weakest month for the S&P 500 index (SPX) with an average loss of 0.70% from 1980 to 2019, while all months average a return of +0.67%. This year looks as though it will continue the trend unless markets can make a serious turnaround in the next week and a half. Last week, the S&P 500 lost 0.5% and is now down 2.1% for the month.
While US markets have been weak so far this month, returns have no doubt been very strong year-to-date with the S&P 500 gaining 19.3%, the Dow Jones Industrial Average (DJIA) gaining 14.6% and the NASDAQ Composite moving 17.3% higher. The current “pullback” is relatively small no matter how you measure it and is probably healthy after the market has seen positive performance in each month of 2021 since January. Stocks rarely go up with such little volatility and it feels as though we’re overdue for some fireworks on either side of the flatline. Here are just a few things that could move markets over the coming weeks and months: changes to corporate taxes, progress (or lack of progress) on the bipartisan infrastructure bill, the ongoing battle over the U.S. debt limit, potential implosion of a major Chinese real estate developer, or a Federal Reserve announcement on asset-purchase tapering.
Trading last week was influenced by a variety of economic indicators and news coming out of Washington. While the S&P 500 lost 0.5%, the DJIA lost just 0.1%. The NASDAQ Composite trading was in line with the S&P 500, also losing 0.5%. Returns by sector were somewhat odd when compared to recent weeks where stocks closely tied to the economic recovery tended to trade together. The Materials and Industrials sectors fell 3.2% and 1.6%, respectively, while the Energy sector (which often trades in sympathy with Materials and Industrials) was up 3.3% as crude oil prices rose above $70/barrel for the first time in over a month. Continued severe weather in the Gulf of Mexico is expected to disrupt oil production, which should help prices remain elevated. Sectors less tied to the economic recovery were mixed for the week. Consumer Discretionary stocks gained 0.5%, Technology lost 0.7%, Healthcare lost 0.2%, while Communication Services fell 1.2%.
Last week, stocks began on a positive note with markets finishing mostly higher on Monday after several days of losses in the week prior. Covid cases fell from Delta variant highs and investors prepared for economic releases later in the week. Stocks ended sharply lower on Tuesday as investors worried about mixed economic data and what it could mean for Federal Reserve policy. Inflation as measured by the Consumer Price Index (CPI) increased 0.3% in August, less than the 0.4% expected. Wednesday saw a small recovery as Energy stocks rallied and Industrial Production grew 0.4% in August, which calmed investors’ nerves. Thursday saw a return to choppy, nervous trading with the major indices ending the day mixed. Initial jobless claims came in higher than expected but not at a level high enough to cause concern. Continuing jobless claims maintained their march lower, reaching a pandemic-era low, a positive sign for the U.S. labor market. Separately, U.S. retail sales rose 0.7% in August versus. an expected 0.8% decline. On Friday, stocks fell sharply once again as stock options, index options, stock futures, and index futures all expired in a “quadruple witching” that generally leads to elevated levels of volatility. Economic data rounded out the week on a sour note with consumer sentiment falling short of consensus expectations.
Investors shouldn’t be surprised if the next two weeks continue to disappoint. All the factors mentioned above have the potential to influence markets and this week will feature the two-day Federal Open Market Committee (FOMC) meeting beginning on Tuesday. Investors will be eager for Fed Chair Jerome Powell’s press conference on Wednesday where they will hope to glean some insight into the Fed’s next policy moves. The burning question will be when the Fed will formally announce the tapering of its bond purchase program. Many expect that the Fed will kick the can down the road to their next formal meeting as Covid infections and mixed labor conditions provide cover for continued accommodative monetary policy.
While the rest of September is generally a headache for investors, the final three months of the year tend to feature greener pastures. The average return of the S&P 500 in October, November, and December from 1980-2019 has been 0.92%, 1.48%, and 1.11% respectively, much better than the overall monthly average of 0.67%. The historically strong performance in these months is a combination of the “sell in May and go away” and “Santa Claus rally” adages. As always, investors should maintain their focus on the long term rather than getting caught up in month-to-month fluctuations in the markets. Still, a brief history lesson rarely hurts anyone. As the saying goes, those who cannot remember the past are condemned to repeat it.
The coming week features a variety of economic announcements worth keeping an eye on. The highlight of the week will be the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday.
| Date | Report | Previous | Consensus |
| Monday 9/20/2021 | National Association of Home Builders Index | 75 | 75 |
| Tuesday 9/21/2021 | Building Permits | 1.63M | 1.62M |
| Housing Starts | 1.53M | 1.55M | |
| FOMC Meeting | |||
| Wednesday 9/22/2021 | Existing Home Sales | 5.99M | 5.87M |
| FOMC Statement and Press Conference | |||
| Thursday 9/23/2021 | Initial Jobless Claims | 332,000 | 320,000 |
| Continuing Jobless Claims | 2.85M | – | |
| Leading Economic Indicators | 0.9% | 0.7% | |
| Friday 9/24/2021 | New Home Sales | 708,000 | 720,000 |
| Variety of Federal Reserve speakers |
Links to previously published commentaries can be found at benjaminfedwards.com/For Our Clients/Educational Resources/Market.