Is the Market Headed for a Hangover? A Closer Look at the September Dilemma

Wall Street breathed a sigh of relief last week after the Fed's first rate cut of 2025. The market quickly switched to "risk-on mode." Investors were cheering, and it seemed like this rally would never end. However, historical experience suggests that the latter half of this month may see a "hangover effect." According to research by LPL Financial, September stock market performance shows significant "front-back split" characteristics, with the first half usually experiencing sideways movement or a slight increase, while the latter half tends to decline until the end of the month. Dow Jones Market data shows that the U.S. stock market has staged a historic rebound this month, completely breaking September's reputation as the "weakest month of the year." Analysts believe this is mainly due to improved macroeconomic momentum and market trends.

Conflicting Signals: Is the Market Too Complacent?

Despite high market sentiment, Wall Street's traditional warnings remain: Stocks at historic highs are more susceptible to shocks due to overvaluation, and investors should be wary of upcoming corrections or periods of volatility. However, other indicators suggest that the stock market may still have room to grow. Mark Hackett, chief market strategist at Nationwide, points out that investor sentiment has not shown signs of extreme optimism. The latest AAII sentiment survey showed that for the week ending last Thursday, bullish sentiment (the percentage of investors expecting stock prices to rise in the next six months) was 41.7%, while bearish sentiment was 42.4%. Although bullish sentiment was above the historical average of 37.5% for the first time in seven weeks, bearish sentiment remained unusually high, exceeding the long-term average of 31.0%.

Looking Ahead: What Does the Second Half of September Hold?

As September enters its second half, the market will see non-farm payrolls, inflation figures and other key economic data. These major events will test investors' resolve, patience, and ability to make sound decisions. Historical indicators are wrestling with current dynamics, creating a complex landscape for investors. While the possibility of a market correction remains, current indicators do not point to an excessively overheated market. Nevertheless, investors should remain vigilant and closely monitor key indicators to make informed investment decisions.