The seasonality stats for September haven’t been very promising over the last decade. The Daily Breakdown looks at what it means for stocks.
Friday’s TDLR
- September has been brutal for the S&P 500.
- The index has fallen in 7 of the last 10 Septembers.
- BAC is running into resistance.
The Bottom Line + Daily Breakdown
Short of a big pullback on Friday, the S&P 500 looks set to have a solid August, up 1.3% going into the last trading day of the month. That’s despite the tough start we had to August, when the index was down 7.3% at one point.
However, we’re approaching what has typically been a tough month for US equities.
For the S&P 500 specifically, the last four Septembers have resulted in a loss, including declines of 4.9%, 9.3%, 4.8%, and 3.9% from 2023 back to 2020.
The S&P 500 has declined in 7 of the last 10 Septembers, generating an average loss of 2.3% for the month. In fact, the index’s best September in that stretch was a gain of 1.9% in 2017.
For what it’s worth, no other month has generated an average loss over the last decade.
Will this year be different?
Quite literally, it’s impossible to say. The average decline from the last four years is 5.7%.
It’s hard to say we would expect a decline of that magnitude, given the S&P 500 has only posted a monthly decline of 5.7% or worse 9 times in the last decade (or about 7.5% of the time).
Admittedly, there is uncertainty swirling around the market — including geopolitics, US politics, the US economy, and elevated volatility after the VIX spike earlier this month.
However, the foundation for this bull market remains strong on the back of solid earnings growth, lower rates from the Fed, and increased participation from more sectors (improving breadth).
The Bottom Line
Here’s the thing. Seasonality is just one consideration when investing; it doesn’t work 100% of the time. Otherwise, investors would buy every January, sell every May, and go short every September — or whatever pattern fits the seasonality trend at the moment.
The reality is, seasonality can be a part of an investor’s thesis, particularly when there are decades worth of support behind certain observations. But only taking seasonality into account fails to account for the reality of the given environment. That includes considering the “right now” catalysts — like earnings or elections — as well as the bigger picture catalyst like those laid out a few paragraphs ago.
The bottom line: Seasonality is something active investors should keep in the back of their mind. It’s good to be aware of, but it’s not something to base all of your decisions on.
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The setup — BAC
The banks continue to trade pretty well, with the Financial Select Sector SPDR ETF XLF making another 52-week high on the day.
While many top components within the XLF are hitting one-year highs, Bank of America isn’t one of them. The stock did so back in July, but has since had a pretty big tumble.
Now, it’s contending with a key resistance area near $40.
BAC recently found support at the 200-day moving average, followed by a strong bounce back toward $40 and the 50-day moving average, which has been recent resistance.
The stock was able to clear $40 in early July, ultimately running to $44. Bulls should keep BAC in mind and perhaps consider adding it to their watchlist. If it can clear and hold above $40, the bullish momentum could continue. If it can’t regain $40, then lower prices could be on the way.
Given the way financials have been trading lately, BAC may be on investors’ radar.
Options
Investors who believe shares will break out — or those who are waiting for the potential breakout to happen first — can participate with calls or call spreads. If speculating on the breakout rather than waiting for it to happen first, make sure to use enough time until expiration.
For investors who would rather speculate on resistance holding and shares trading lower, they could use puts or put spreads.
To learn more about options, consider visiting the eToro Academy.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.