An S&P 500 correction of nearly 10% last September is causing stock market investors to fear fall 2021

Even as stocks look set to hit new highs in September, the sense of dread on Wall Street is palpable.

Strategists (and the media) ranted incessantly about the seasonal trends that make September one of the worst months of the year for stock benchmarks.

via LPL Financial

Even last year, when stocks were in an almost relentless race for records, the S&P 500 SPX,
took a nosedive in September, at one point wiping out nearly 10% in value before resuming its bullish rally.

Finally, September 2020 registered a 3.9% decline for the S&P 500, after five straight months of sharp gains in the wake of the COVID-19 pandemic that nearly brought financial markets and the general public to a standstill.

This time around, investors are concerned as markets are in line, with seven straight months – and still – of gains ahead of the broad market benchmark, and there is a growing sense that valuations are rich and the Federal Reserve’s easy money punchbowl will be snatched soon.

Seven months of consecutive profits is an impressive number:

via LPL Financial

Ryan Detrick said in a research note Tuesday the usual warning for this time of year.

“While this bull market has laughed at almost all the worry signs in 2021, let’s not forget that September has historically been the worst month of the year for stocks,” wrote LPL Financial’s chief strategist.

There is little doubt about the story surrounding the reason for uneasiness:

  • Friday’s job report

  • Stock valuations are rich depending on your measure

  • The delta variant of the coronavirus is spreading as schools open

  • Inflation worries

  • The Fed Meeting of September 21-22

  • The debt ceiling

  • Quadruple Witch Options and Stock Expiration

  • Gravity

Sahak Manuelian, head of stock trading at Wedbush Securities in Los Angeles, told MarketWatch’s Joy Wiltermuth in an interview that volatility could play a big role this month.

“I think September, and the volatility that is usually around September, can really come back into play,” the trader said.

That said, MarketWatch columnist Mark Hulbert argued that despite statistics showing that September (and October, arguably worse) is a terrible month for stocks, investors should not be fooled by loose correlations.

“The knowledge of the stock market is filled with correlations that are statistically significant, but have no real meaning,” Hulbert wrote.

Paul Schatz, the president of Heritage Capital, gave similar advice in a blog post, noting that September’s negative data also depends on how you look at the month’s performance metrics.

“As the calendar spins, many experts have discussed that September has historically been the worst month of the year for stocks. That is factually correct. Depending on which year you choose the launch date,” Schatz writes.

“September has an average negative return of -1.10% since 1928. However, the devil is really in the details,” he said.

He argues that August’s performance, which was strong this year (and strong last year too), plays a role in the September figures.

“If we look at times when the stock market starts in an uptrend in September, the negative return turns positive about 0.5%,” he wrote. “That, in turn, also tells us that when the stock market starts the month that is already in decline, it averages close to -3%.”

Whichever way investors slice it, the market is likely to be subject to jerkiness as nothing goes up in a straight line forever and the S&P 500 hasn’t registered a drop (down from its recent high) of 5% or worse yet. this year.

Detrick said the market’s continued monthly gains so far may provide a better measure of the market’s performance over the coming three-month, six-month and 12-month periods, with average gains of 4.1%, nearly 8, respectively. % and 9.5%. , during those periods when the S&P 500 has produced win streaks of at least seven months.

via LPL Financial

On Wednesday, the markets got off to a pretty solid start for September. The Nasdaq Composite COMP,
hit its 33rd all-time high of 2021, and the S&P 500 narrowly missed its 54th all-time high as gains held up. The small capitalization Russell 2000 index RUT,
increased by about 0.6%.

However, the Dow Jones Industrial Average DJIA,
posted a loss of 0.1% to start the month.

Wall Street will soon see September take shape.