Here Comes the Worst Month of the Year

Market Blog Posted by lplresearch

Tuesday, August 31, 2021

The incredible bull market continues, with the S&P 500 Index up to a record 53 new all-time highs before August is over, topping the previous record from 1964.

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“Although this bull market has laughed at nearly all the worry signs in 2021, let’s not forget that September is historically the worst month of the year for stocks,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September.”

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The S&P 500 hasn’t had so much as a 5% correction since last October and with stocks up more than 100% since March 2020, investors should be open to some potential seasonal weakness. The good news is we remain in the camp that stocks will continue to go higher and investors should use any weakness as an opportunity to add to core equity holdings.

Let’s be honest, stocks can’t go up forever. In fact, the S&P 500 is about to be up 7 months in a row, one of the longest monthly win streaks ever.

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It is what happens next that has our attention. As the LPL Chart of the Day shows, after 7-month win streaks, the S&P 500 has been higher six months later 13 out of 14 times, with a very impressive 7.8% average return. This reinforces our belief that in the event of a well-deserved pullback, it would be an opportunity to buy at cheaper prices.

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With a very highly anticipated Federal Reserve Bank meeting in September, along with continued Delta variant worries, coupled with the fact that stocks haven’t pulled back in a long time, investors should be on the lookout for some seasonal volatility in September. We remain in the camp that any weakness, should it occur, could be short-term and likely be contained in the 5-8% range. This bull market is alive and well and we would view any potential weakness as an opportunity.

For more of our thoughts on today’s markets, please read Poking the Bear, our latest Weekly Market Commentary.


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All index and market data from FactSet and MarketWatch.

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