(Bloomberg) — An old Wall Street adage — one that happens to be backed by decades of data — says that September is the worst month of the year for the US equity market.
Yet if the past is any guide, this month could defy the usual seasonal weakness since Federal Reserve policymakers appear to be poised to resume cutting interest rates at their next meeting.
Most Read from Bloomberg
“Anticipation for a Fed cut later this month could help buck the trend,” said Bloomberg Intelligence strategist Nathaniel Welnhofer. “Returns in September are typically higher when the Fed is cutting in a non-recessionary environment.”
While the S&P 500 Index (^GSPC) has fallen 1% on average during Septembers going back to 1971, it has gained 1.2% in the month when the US central bank was reducing borrowing costs and the economy was not contracting, according to data analyzed by Welnhofer. The most recent exception to the negative seasonality was just last year, when officials slashed interest rates by 50 basis points and the S&P 500 rose 2% in the month.
Traders cemented bets on Friday that policymakers will lower rates on Sept. 17 after the latest employment data showed US jobs growth slowed markedly last month and the unemployment rate rose to the highest since 2021. Fed Chair Jerome Powell already had signaled the move was likely during his late-August speech at the central bank’s annual symposium in Jackson Hole, Wyoming.
Easing monetary policy would be a big source of support for stock bulls at a time when sky-high valuations are confronting bearish seasonality. September is the only month of the year when the probability of the S&P 500 falling is higher than the likelihood of it rising, according to data from UBS Securities LLC. The US benchmark has dropped 0.7% on average over the past 75 Septembers.
There’s a confluence of factors that typically put a damper on stock-market performance during the month. Pensions and mutual funds rebalance portfolios at the end of the quarter, while retail buying activity tends to wane in September and Corporate America stops buybacks — a crucial backing for the market — ahead of third-quarter earnings reports.
In addition to 2024, past years when the Fed eased during non-recessionary periods were 2019, 2007 and 1995, when the S&P 500 rose 1.7%, 3.6% and 4%, respectively, according to BI’s analysis. Returns in September were much worse when cuts came during times of recession, with the US stock benchmark declining an average 5% in such instances going back to 1971: it dropped 11.9% for the month in 1974, 8.2% in 2001 and 9.1% in 2008.
While the economy may not be in a recession this time around, stock traders do face crosscurrents that could challenge performance. In addition to the labor market slowing, uncertainty remains around the impact of US tariffs on corporate profits. And stock market concentration that favors just a handful of big technology companies tied to artificial intelligence puts benchmark indexes at risk if cracks form in that investing theme. Not to mention, inflation remains above the central bank’s preference of 2%.
“It’s a bit of nuance,” said Aaron Nordvik, head of equity macro strategy at UBS. “Inflation is still a hindrance to the Fed cutting as aggressively as may be needed.” While the most recent government jobs data released on Sept. 5 does lift the probability of rate cuts, he added, “it’s not an ideal print for risk.”
To Paisley Nardini, head of multi-asset solutions at Simplify Asset Management Inc., investors should treat the weak payrolls data with caution instead of as a reason to buy in anticipation of lower interest rates.
“If we are rapidly losing jobs, we should be concerned that the consumer will struggle,” she said. Investors should look at the increased chance of policy support “as a Band-Aid to the inevitable: a recession,” she added.
Over at Barclays Plc, meanwhile, global head of equities tactical strategies Alexander Altmann sees another reason to dismiss the old seasonality adage as a reason to sell.
According to his calculations going back 20 years, the average September performance for the S&P 500 has indeed been the worst of any month with a decline of 0.65%. But the math has been skewed heavily by the global financial crisis of 2008 and monetary tightening in 2022 that sent stocks cratering in those months. Strip out those shocks, and the gauge was up 0.3%.
“Absent these external events, September is not as negative as it optically appears, with average performance still positive,” he said. While there certainly are headwinds that could derail equities’ path, including looming inflation data, “bearish views based exclusively on seasonality are somewhat overblown.”
—With assistance from Elena Popina and Jessica Menton.
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.