The month of September has historically been a challenge for the markets which is why many investors are expressing concerns about what lies ahead for the next month. Despite a strong recovery after last year’s selloff, the S&P 500 is up over 17% this year. Historical data demonstrates however, that the S&P 500 has lost an average of 1.1% in September dating back to 1928, making it the worst performing month during the year on average. There are a number of reasons for this - one being that September follows a mid-year earnings season and the other is that September also happens to be sandwiched right between most states primary elections and the national general election. Investors are known to pull back from the market when there is political uncertainty.
Fitch’s downgraded the U.S. Credit Rating from AAA to AA+ this week and the markets have only had a slight reaction. The last credit downgrade happened on August 5, 2011 and the S&P 500 opened at 1,200 points fell by nearly 11 % by early October. Over the next few months, the index had gained nearly 17% from that low to close 2011 at 1,257 – up nearly 5.5% above where it stood before the credit was downgraded. I’m not saying that the downgrade doesn’t matter, I’m saying that it doesn’t necessarily spell the end of the markets. Buying stock in a private company with a global market is not the same as buying a stock in a company who’s only customer is the government.
People have been nervous for the last couple of years as the markets, both stock and bond, have been lingering in bear market territory. Keep this in mind – year to date, the S&P 500 was up 20% by the end of July.
Strategies matter. Diversification matters. Aligning your portfolio to bring it in line with your tolerance for risk matters. What your ROTH, traditional IRA, 401(k), or brokerage account does is entirely up to the decisions you make today. Don't let the stock market control you, but rather, let it inform you.
Here are some other bits of important information:
- Valuations are above recent norms, which could lead to a more sever decline if stocks drop.
- The 10-year Treasury yield is at its highest level in nearly a year, potentially making stocks less attractive than bonds.
- Rising oil prices may stoke inflation concerns and lead the Federal Reserve to maintain higher interest reates for longer
- The Jobs and Labor reports are strong
- Inflation has been cooling month over month leading the Fed to temporarily pause interest rate hikes in early summer but then raise the rates by 25 basis points in July. Chairman Jerome Powell is pivoting to a dovish approach on future interest rate hikes but remains committed to using the rates as a means of staving off potential inflation concerns.