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An S&P 500 correction of almost 10% last September makes stock market investors fear the fall of 2021

While stocks are likely to hit new highs in September, the fear is palpable on Wall Street.

Strategists (and the media) have been talking 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 ceaseless race for records, the S&P 500 SPX + 0.03% took a nosedive in September that caused it to lose nearly 10% in value at one point before falling resumed its bullish rally.

Ultimately, September 2020 saw a 3.9% decline for the S&P 500 after five consecutive months of strong gains following the COVID-19 pandemic that nearly paralyzed financial markets and the general public.

This time around, investors are concerned because the markets are posting gains for the broad-market benchmark for seven straight months – and the trend is rising – and a growing sense of valuations are high and the easy money of the Federal Reserve is soon to be ripped away.

Seven months of consecutive wins is an impressive record:

via LPL Financial

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

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

There is little doubt about the narrative surrounding the cause of the discomfort:

  • The Friday job report

  • Ratings are ample for stocks, depending on your rating

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

  • Inflation concerns

  • The Fed meeting September 21-22

  • The debt ceiling

  • Quadruple Witching Options and Stock Expiration

  • Heaviness

Sahak Manuelian, head of stocks trading at Wedbush Securities in Los Angeles, told MarketWatch’s Joy Wiltermuth in an interview that volatility could be very important this month.

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

Even so, MarketWatch columnist Mark Hulbert argued that despite statistics showing September (and October, arguably worse), is a terrible month for stocks, investors shouldn’t be swayed by loose correlations.

“The lore in the stock markets is full of correlations that are statistically significant but have no meaning in the real world,” wrote Hulbert.

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

“During the course of the calendar, many experts have discussed that September is historically the worst month of the year for stocks. That is factually correct. Depending on which year you choose the start date, ”writes Schatz.

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

He argues that the performance of August, which was strong this year (and last year), plays a role in the September numbers.

“If we look at times when the stock market begins an uptrend in September, the negative return becomes positive by about 0.5%,” he wrote. “That in turn also tells us that if the stock market is already starting the month in bearish, it will be almost -3% on average.”

However investors cut it, the market is likely to be choppy considering that nothing goes up in a straight line forever and the S&P 500 does not yet have a drawdown (retreat from its most recent high) of 5% or worse Year.

Detrick said the market has seen sustained monthly gains to date, with average gains of 4.1%, nearly 8%, over the periods when the S&P 500 has produced streaks of at least seven months.

via LPL Financial

On Wednesday, the markets started September quite solidly. The Nasdaq Composite COMP hit its 33rd record from 2021 at + 0.33%, and the S&P 500 narrowly missed its 54th all-time closing high, with gains falling. The small cap Russell 2000 Index RUT, + 0.58%, rose about 0.6%.

However, the Dow Jones Industrial Average DJIA, -0.14%, was down 0.1% at the beginning of the month.

Wall Street will soon see how September plays out.

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