SEASONALITY: September is around the corner and typically the weakest month for markets, given the end-of-summer blues, mutual fund tax loss harvesting, and back-to-school consumer expenses. With stocks already down by 5% in August this seasonal pattern adds to the cautious mood. We think this consolidation was overdue and volatility too low. But that markets remain fundamentally supported by recovering earnings and secure valuations, with inflation falling and interest rates peaked. The weak ‘September effect’ may have been pulled forward into August, as it is now well known, and be just setting up for the typical Q4 year ahead repositioning rally.
GLOBAL: We analysed 15 of world’s largest stock indices going back an average of fifty years. The typical September price return was a 1.1% fall, by far the worst of the three average down months seen (see chart). Not a single one of the analysed markets was positive. The greatest weakness was in smaller and more volatile assets, led by Italy’s FTSE MIB, the German DAX, and UK’s FTSE 250 mid-caps. US stock markets seasonality was below the global average. We also saw evidence of September price weakness being pulled forward into August.
DRIVERS: The perceived ‘September effect’ drivers are varied. 1) An end of summer ‘return to reality’, with over 85% of global assets under management in the northern hemisphere. 2) US mutual fund tax loss harvesting ahead of many September year ends. 3). $1,000 per household back-to-school and College expenses. Yet every year is different and averages can deceive. October is typically a better month but also saw the two largest single-day US stock market plunges in history with Black Friday (1929) and Black Monday (1987). Any September weakness may also just be an opportunity to position for the year’s strongest fourth quarter seasonality.
All data, figures & charts are valid as of 23/08/2023.