Even though it got off to a rough start, September has been mostly a good month for the stock market. But based on past events, buyers may find that October is more volatile than usual.
Without a doubt, major averages like the S&P 500 SPX -0.13% are set to go against a long-term trend by ending September strongly in the positive. Dow Jones Market Data says that when Wall Street finishes on Monday, the index will have had its best September performance in more than a decade. It has already gained 1.6% for the month.
Stocks have had the worst month of the year in March for almost 100 years, and results have been especially bad in recent years.
Based on the same seasonal study, things might not go as smoothly in October either.
Based on data from CFRA’s Sam Stovall that goes back to the 1940s, the stock market has tended to stay weak in October during election years after a weak September.
While regular trends are one thing that is making investors nervous, there are many other things that could happen in the next month that could also make investors lose faith. In September, the Fed’s big interest-rate cut helped stocks do well. However, investors won’t be able to rely on Fed Chair Jerome Powell until November, when the Fed’s next policy meeting takes place.
In the meantime, they will have to deal with a lot of economic data, and each new piece of data could reveal new risks.
Jake Jolly, head of investment analysis at BNY Investments, told MarketWatch on Friday that even reports that weren’t thought to be very important before, like the Fed’s Beige Book and retail sales readings, could change the market as people try to figure out how much the job market is slowing down and where the economy might be going next.
The Labor Department’s monthly nonfarm payrolls report for September is coming on Friday, which is the first big report. But before that, investors will get a lot of other job market data that will move the market.
Jolly said, “That’s the next big test for the market.”
The beginning of the third-quarter report season for businesses could also be hard. Wall Street thinks that the biggest companies in the US will report even faster profit growth in 2025 after a strong second quarter.
According to FactSet data, the S&P 500 has gone up 60% since its October 2022 lows. Terry Sandven, chief equity analyst at U.S. Bank Wealth Management, told MarketWatch that any news that goes against these expectations could set off another leg of the rally.
There are always political and global risks in the background. Investors could be scared off by a “October surprise” that changes how the November election is viewed. So could signs that the war between Israel and the militant group Hezbollah in Lebanon is about to get worse.
According to Sandven, any disappointment could quickly spread because stock prices are on the high side compared to the past.
“For now, the prices of stocks are just right, so a lot has to go right,” he said.
A September to remember
It’s likely that the market will be volatile again, but investors have a lot of reasons to be positive about the long run.
For one thing, the number of stocks that helped the S&P 500 kept growing in September, after a small increase at the beginning of the third quarter.
Also, investors have been quick to jump in and buy stocks when they go down, which shows that they still see value in the chaos.
Like in August, the market took a big drop at the beginning of September, but it quickly made up for it. Dow Jones records show that this year was the first time ever that the S&P 500 ended the year higher after falling by at least 4% in the first few days.
Ari Wald, chief technical analyst at Oppenheimer, told MarketWatch that the market is still in a “healthy” state because the breadth is getting better.
Wald said, “We’re seeing parts of the market that haven’t really been invested in as much catch up.” “We believe we are still in the middle stages of a long-term bull market.”
There will likely be strong earnings throughout the third quarter, along with this shift in sectors, which, according to Jay Woods, chief global strategist at Freedom Capital Markets, could “set up the stock market well going into October and the last quarter of 2024.”
Not everyone is sure, though, that the market will continue to rise as quickly as it has over the last two years.
The markets were quiet for a long time, but over the summer they became volatile again. Jolly from BNY said that investors will probably continue to experience bouts of instability more often because it’s hard to tell how quickly the Fed will move to cut rates in the future.
BNY thinks that the rise might slow down in 2025.
October marks the second anniversary of the start of the bull market. Investors may want to take a moment to reflect on how far things have come. Some people might get dizzy after that.
