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Heavy selling pressure marked the beginning of August, and it appears markets are off to a similar rocky start this month.
The major indices were met with a September swoon on the first trading day of the month. Semiconductor stocks in particular were hit hard, as market participants continue to rotate out of technology and into rate-sensitive names ahead of the Fed’s upcoming policy meeting.
The rotation has put big tech in the back seat lately as evidenced by the Technology SPDR ETF (XLK - Free Report) , which seeks to provide an effective representation of the technology sector of the S&P 500:
Image Source: StockCharts
Notice that XLK sliced back below the 50-day moving average (blue line) yesterday but found support at a prior breakout level (green line). The next area of support is the 200-day moving average (red line); we’ll see if buyers step up in the coming days.
Recurring Seasonal Trends
The stock market tends to display seasonal propensities, whereby certain months of the year have historically outperformed relative to others. For example, we know that a positive tendency is usually exhibited around the holidays, particularly during the November-December stretch.
The month of September is widely known as the weakest month of the year. In terms of S&P 500 returns dating back to 1925, it’s the only month that has been net negative over time. The fact remains that September has been positive less often relative to any other calendar month.
October is also known for its volatile swings. In fact, we’ve seen a deep correction in the September-October period in each of the last two years. September has also been lower in each of the last four years.
Of course, seasonal patterns are not a sure thing.
Are you expecting a big drawdown in September? Not so fast – here’s what most investors usually miss.
September Is Actually Green More Often Than Not
Over the past 99 years, the month of September has actually been positive 55% of the time. Yes, this is less often than the average month, but it’s still better than flipping a coin. In other words, it’s the big (and relatively rare) monthly historical losses that paint a gloomy picture for September.
If we take out just six of the worst September months dating back nearly a century, the so-called “worst month” actually flips to a positive return on average.
Let’s remember that this year also brings a Presidential election. Of course, we need to acknowledge the inherent uncertainty heading into this election. It’s important to keep an open mind and remain flexible in terms of market outcomes.
During election years, the month of September tends to hold up a bit better than its long-term average (but still slightly negative) and has been higher about half of the time.
Image Source: Zacks Investment Research
Keep mind that we are in just the 2nd year of a new bull market. Dating back to 1949, the maximum drawdown for the S&P 500 during the 2nd year of new bull markets is 9.4%. We just saw an 8.5% pullback from the July high to the early August low (and more like 10% peak-to-trough on an intraday basis).
Image Source: Zacks Investment Research
There are plenty of bears out there expecting another sour result in September. But anything can happen in the financial markets, and with earnings and economic data continuing to show strength (along with a Fed ready to cut rates), we need to be prepared for better-than-expected outcomes during this misunderstood month.
Sector Rotation Sparks New Opportunities
The stocks that hold up well through volatility are usually the ones that go on to lead the charge higher once the market regains its footing. The Zacks Insurance – Brokerage industry group, which currently ranks in the top 3% out of approximately 250 industries, has shown relatively little volatility and is steadily outperforming the market over the past month:
Image Source: Zacks Investment Research
A leading stock within this top-ranked industry is Brown & Brown (BRO - Free Report) . A marketer and provider of insurance products, the stock is a Zacks Rank #2 (Buy). BRO stock has rewarded investors this year with a nearly 50% return:
Image Source: StockCharts
Brown & Brown has surpassed earnings estimates in each of the past four quarters, delivering an average earnings surprise of 9.8%. The company is experiencing positive earnings estimate revisions, which our research has shown to be the most powerful force impacting stock prices.
Analysts covering BRO have increased their full-year EPS estimates by 1.94% in the past 60 days. The 2024 Zacks Consensus Estimate now stands at $3.68/share, reflecting a whopping 31% growth rate relative to the prior year.
Image Source: Zacks Investment Research
Final Thoughts
Another crucial week of market action lies ahead, highlighted by Friday’s release of the August employment report.
We know that the month of September is historically weak, but let’s remember that it does tend to hold up a bit better in election years. The heavy selling to start the month is concerning, but keep in mind what happened in August.
The recent sector rotation is presenting buying opportunities outside of the former leader in technology. Make sure to stay abreast of all that Zacks has to offer as we make our way deeper into September.
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September Swoon: Is a Big Sell-Off Imminent?
Heavy selling pressure marked the beginning of August, and it appears markets are off to a similar rocky start this month.
The major indices were met with a September swoon on the first trading day of the month. Semiconductor stocks in particular were hit hard, as market participants continue to rotate out of technology and into rate-sensitive names ahead of the Fed’s upcoming policy meeting.
The rotation has put big tech in the back seat lately as evidenced by the Technology SPDR ETF (XLK - Free Report) , which seeks to provide an effective representation of the technology sector of the S&P 500:
Image Source: StockCharts
Notice that XLK sliced back below the 50-day moving average (blue line) yesterday but found support at a prior breakout level (green line). The next area of support is the 200-day moving average (red line); we’ll see if buyers step up in the coming days.
Recurring Seasonal Trends
The stock market tends to display seasonal propensities, whereby certain months of the year have historically outperformed relative to others. For example, we know that a positive tendency is usually exhibited around the holidays, particularly during the November-December stretch.
The month of September is widely known as the weakest month of the year. In terms of S&P 500 returns dating back to 1925, it’s the only month that has been net negative over time. The fact remains that September has been positive less often relative to any other calendar month.
October is also known for its volatile swings. In fact, we’ve seen a deep correction in the September-October period in each of the last two years. September has also been lower in each of the last four years.
Of course, seasonal patterns are not a sure thing.
Are you expecting a big drawdown in September? Not so fast – here’s what most investors usually miss.
September Is Actually Green More Often Than Not
Over the past 99 years, the month of September has actually been positive 55% of the time. Yes, this is less often than the average month, but it’s still better than flipping a coin. In other words, it’s the big (and relatively rare) monthly historical losses that paint a gloomy picture for September.
If we take out just six of the worst September months dating back nearly a century, the so-called “worst month” actually flips to a positive return on average.
Let’s remember that this year also brings a Presidential election. Of course, we need to acknowledge the inherent uncertainty heading into this election. It’s important to keep an open mind and remain flexible in terms of market outcomes.
During election years, the month of September tends to hold up a bit better than its long-term average (but still slightly negative) and has been higher about half of the time.
Image Source: Zacks Investment Research
Keep mind that we are in just the 2nd year of a new bull market. Dating back to 1949, the maximum drawdown for the S&P 500 during the 2nd year of new bull markets is 9.4%. We just saw an 8.5% pullback from the July high to the early August low (and more like 10% peak-to-trough on an intraday basis).
Image Source: Zacks Investment Research
There are plenty of bears out there expecting another sour result in September. But anything can happen in the financial markets, and with earnings and economic data continuing to show strength (along with a Fed ready to cut rates), we need to be prepared for better-than-expected outcomes during this misunderstood month.
Sector Rotation Sparks New Opportunities
The stocks that hold up well through volatility are usually the ones that go on to lead the charge higher once the market regains its footing. The Zacks Insurance – Brokerage industry group, which currently ranks in the top 3% out of approximately 250 industries, has shown relatively little volatility and is steadily outperforming the market over the past month:
Image Source: Zacks Investment Research
A leading stock within this top-ranked industry is Brown & Brown (BRO - Free Report) . A marketer and provider of insurance products, the stock is a Zacks Rank #2 (Buy). BRO stock has rewarded investors this year with a nearly 50% return:
Image Source: StockCharts
Brown & Brown has surpassed earnings estimates in each of the past four quarters, delivering an average earnings surprise of 9.8%. The company is experiencing positive earnings estimate revisions, which our research has shown to be the most powerful force impacting stock prices.
Analysts covering BRO have increased their full-year EPS estimates by 1.94% in the past 60 days. The 2024 Zacks Consensus Estimate now stands at $3.68/share, reflecting a whopping 31% growth rate relative to the prior year.
Image Source: Zacks Investment Research
Final Thoughts
Another crucial week of market action lies ahead, highlighted by Friday’s release of the August employment report.
We know that the month of September is historically weak, but let’s remember that it does tend to hold up a bit better in election years. The heavy selling to start the month is concerning, but keep in mind what happened in August.
The recent sector rotation is presenting buying opportunities outside of the former leader in technology. Make sure to stay abreast of all that Zacks has to offer as we make our way deeper into September.