A recent analysis by Nomura Securities suggests that the U.S. stock market could be in for a tumultuous second half of September, particularly in the week following September 15th, as monthly options expire. Over the past 33 years, this phenomenon, known as the “September Effect,” has witnessed the S&P 500 Index experiencing a decline in 26 of those years, with a median drop of 1%.
This time, the critical week coincides with the Federal Reserve’s monetary policy meeting, slated to conclude on September 20. While market participants anticipate the central bank to maintain current interest rates, they are eagerly watching for any hints about potential future rate adjustments. Nomura strategist Charlie McElligott posits that the anticipated stock price dip during this period may stem from mutual funds shedding stocks before the fiscal year-end on October 31st to bolster their appeal to investors, a practice commonly referred to as ‘window dressing’. Additionally, individual investors might be liquidating holdings to meet their estimated tax obligations in September.
As of today, the S&P 500 index is down 0.9% for the month. Investors are preparing for a series of potentially market-moving events in the days ahead, notably Wednesday’s release of the U.S. consumer price report.
Despite these concerns, there is a glimmer of hope. Historical data from Tallbacken Capital Advisors indicates that in years where the S&P 500 Index rallied between January and August, which is the case this year, September tended to exhibit positive performance. When analyzing 34 years with a more than 10% increase in the S&P 500 through August, stocks on average gained 0.3% in September.
As the second half of September looms, market participants are bracing themselves for potential volatility, keeping their survival strategies on standby. With both policymakers and investors on edge, only time will reveal the market’s fate this September. Market participants are urged to remain vigilant and adaptable in the face of potential fluctuations.
Source: Reuters
