Welcome to the Worst Month of the Year

Summer is unofficially over, and investors return from the holiday weekend to begin what has historically been the worst month of the year. Seasonality is one of those metrics that investors like to focus on, but admittedly, it is more of a headline metric than something that should be traded in isolation. 

While we want to be mindful of patterns that play out over time, markets should be analyzed holistically. Price trends are still strong as we enter September, and the Federal Reserve has been given “air cover” for rate cuts by the bond market. 

S&P 500 (Weekly) 
The weekly chart of the S&P 500 gave us a slight pause last week, closing where it opened after ticking a new all-time high. The index remains above the rising 60-week moving average and the key 6,100 level. As we mentioned last week, it is hard to become too bearish above these important levels. 

Source: Optuma 

S&P 500 (Monthly) 
While we are 100% systematic at Potomac, I still love to scroll through charts—especially monthly candles. I do this for all the major groups and sectors in the U.S. and abroad. I’m not going to list them all here, but there are many that are trading at or near record levels. 

The S&P 500 was particularly impressive. Not only has it given us four consecutive positive months, but it has closed in the top half of the monthly range in all four. 

Source: Optuma 

S&P 500 Seasonality 
Since 1950, there are only two months of the year when the S&P 500 has delivered negative performance (on average). February is one, but the hit has been minor. September, however, is a standout. In fact, six of the past ten Septembers have been negative. September was negative from 2020–2023 before breaking the losing streak in 2024. 

Source: Optuma 

The Fed Has Air Cover 
There has been much debate about whether the Federal Reserve should cut rates. While we are not in the business of trying to guess what the Fed is going to do, a September cut is currently the favorite based on market-implied odds. 

The bond market has given the Fed air cover—the 2-year yield sits at 3.62%, well below the Effective Rate of 4.33%. 

Source: Optuma 

Final Thoughts 

September has historically been the worst month of the year. However, strong price trends and technical resilience suggest that bearish sentiment may be premature. The index remains above key support levels, and recent monthly performance has been encouraging. 

Meanwhile, the bond market has provided cover for the Federal Reserve to consider rate cuts, with the 2-year yield well below the Effective Rate.  

Dan Russo, CMT 

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