Why September, Usually the Lousiest Month, May Portend a Good Finish for 2023

Historically, September is the worst month for stocks, with the weakest performance of any month since 1945, according to CFRA Research. What’s more, bad stuff tends to happen in the ninth month: The September 11, 2001, terrorist attacks and the 2008 collapse of Lehman Brothers, which triggered a global financial crisis, are the most prominent examples.

But there is a big exception to September’s bad rep: when the S&P 500 has gained 10% or more for the year through August, the next month does well. So does the rest of the year.

That 10% threshold has been exceeded in 2023, with the index finishing last month up 17.6% year-to-date. In such a case, since 1945, the benchmark has averaged a 7.6% gain for the balance of the year, Bank of America research found. If so, the S&P 500 would end the year at a level of 4,849, up 26.4% for the year and exceeding the all-time high of 4,796, set on January 3, 2022.

As for September itself, LPL Financial calculated that, since 1950, the month enjoyed an average 0.6% gain if the index was up 10% or above through August. That is almost as much as the average 0.7% return for all months.

As Adam Turnquist, LPL’s chief technical strategist, wrote in a research note, “when the market is trending higher and up double-digits on the year, such as this one, September has historically not been as bad.”

To be sure, any number of factors could sour stocks going forward. Much of this year’s advance has been powered by the Magnificent Seven tech stocks (Apple, Microsoft, Alphabet, etc.), but depending upon such narrow leadership is chancier than a much broader breadth would offer.

Further, as of mid-year, the S&P 500 has had three consecutive negative quarters, with 2023’s April-through-June period dropping 4.1% year-over-year by the count of FactSet Research Systems. Plus, the index is pricey, with a forward 12-month price/earnings multiple of 18.8.

August marked a backsliding from the propulsion the market has enjoyed throughout 2023: Last month, the S&P 500 slipped 1.8%. Whether that is a temporary interruption remains to be seen. In the two trading days thus far in September, Friday was up 0.17% and Tuesday was down 0.42%.

Not everyone is buying the upbeat prospect from the September scenario. In a Reuters survey of 41 market strategists, the median forecast was that the S&P 500 would advance 2.2% since its Monday close to year-end. Higher inflation and interest rates would be obstacles to any better results, in their view.

LPL’s Turnquist takes the sanguine view, writing: “While history may not repeat, bullish momentum this year suggests September may not be as bad as the headlines suggest.”