​​Stocks caught up in traditional September weakness​

​​September starts with a bang

​Historically, September has been a challenging month for investors in global markets. Unlike other months that might offer more predictable returns, September often delivers disappointing outcomes. This phenomenon has earned the month a reputation for underperformance, with many investors bracing for potential declines. On average, the S&P 500 tends to end September with negative returns.

​Trading volumes spike in September

​One of the contributing factors to this trend is the increased trading volume that typically occurs after Labor Day. As summer winds down and traders return to their desks, the markets experience a surge in activity. This uptick in trading can lead to higher market volatility, which often translates into sharper price movements. The combination of increased trading volumes and heightened volatility creates a challenging environment for investors, leading to the underperformance seen during this month.

​Recent poor performance for the month

​Over the past four years, the S&P 500 has dropped in September, reinforcing the perception that this month is particularly difficult for the markets. This pattern has left many investors wary, prompting them to carefully consider their investment strategies as September approaches.

​Fed and payrolls dominate the month

​This year, September promises to be no different, with several key events on the calendar that could further impact market performance. One of the most significant is the Federal Reserve's (Fed) policy meeting scheduled for 18 September. The meeting is expected to see a 25 basis point cut, following on from chairman Jerome Powell’s comments at Jackson Hole in August.

​Another critical event is the release of the August jobs report on 6 September. This report provides a snapshot of the labour market's health, and strong or weak employment data can sway investor sentiment. If the report shows robust job growth, it could signal a strong economy, potentially leading to a more hawkish stance from the Fed. Conversely, weaker job numbers could raise concerns about an economic slowdown, influencing the Fed to consider easing monetary policy.

​The outcomes of these events will likely play a significant role in shaping market performance throughout September. Additionally, they could impact the Fed's interest rate decisions, which are crucial for investors. A change in rates can affect everything from bond yields to stock valuations, making the Fed's decisions a focal point for the markets.

​Election years see weakness extend into October

​In election years, the volatility that typically characterizes September can extend into October. This is due to the uncertainty surrounding the election outcomes, which can keep markets on edge. However, once the election results are known, markets often experience a relief rally as uncertainty dissipates. This pattern has been observed in previous election cycles, providing a glimmer of hope for investors navigating the turbulent waters of September and October.

​A time to reassess portfolios?

​Despite the challenges that September often presents, experts advise against making drastic portfolio adjustments based solely on seasonal trends. While it can be tempting to react to the historical underperformance of the month, a more measured approach is usually recommended. Instead of making wholesale changes, investors might consider adjusting their portfolios to better align with current market conditions.

​For instance, if interest rates are expected to fall, dividend-paying stocks in sectors like utilities and consumer staples might be attractive. These stocks tend to offer more stable returns and can be less sensitive to economic fluctuations. On the other hand, if the US dollar is expected to depreciate, sectors like healthcare and aerospace/defence could benefit, as these industries often have significant international exposure.

​Another strategy that has proven effective over time is buying during market lows in September or October. Historically, markets have tended to rally towards the end of the year, making these months potentially opportune times to invest. This strategy capitalises on the seasonal weakness and positions investors to benefit from the subsequent recovery.