Will the Stock Market Follow Historical September Patterns This Year?

September has long been a challenging month for the U.S. stock market. The month is known historically for seasonal weakness, plus the potential for increased volatility after the lull of lighter summer trading volumes. With a key non-farm payroll report looming and the Federal Reserve potentially poised to begin cutting interest rates, macro market uncertainty is rising. Dow Jones Market Data shows that going back to 1897, the Dow Jones Industrial Average (DJI) averages a 1.1% loss in September, with gains recorded in just 42.2% of years. September is similarly the worst-performing month of the year for the S&P 500 (SPX) and the tech-heavy Nasdaq Composite (COMP). The two indexes average losses of 1.1% and 0.9%, respectively. Since 1928, the S&P 500 has only seen gains in September 44.9% of the time. For the Nasdaq, positive returns in September have occurred 51.9% of the time since 1971. Adam Turnquist, chief technical strategist at LPL Financial, said, “Financial markets often shift gears in September—leaving behind the lower volumes and muted volatility of summer and entering a period historically associated with seasonal weakness and increased market instability.”

Assessing Seasonal Trends in the Current Market Context

It’s important to view seasonal trends in the context of current market conditions, as these trends only reflect the overall market mood, rather than the specific landscape on Wall Street. This means that stock market performance in September may not necessarily follow seasonal patterns. History also shows that if the stock market is trending upward entering September, the seasonal weakness typically fades in September. In other words, as long as the stock market remains strong in August, September shouldn’t be as worrisome. And U.S. stocks have been strong in August: Economy-sensitive sectors rallied sharply on the back of growing optimism that the Federal Reserve will begin cutting interest rates in 2025. Recent slight upticks in consumer prices due to tariffs and a labor market cooling faster than previously anticipated appear to support an accommodative Fed policy. Last month, the Dow rose 3.2%, its best August since 2020. The Nasdaq gained 1.6% over the same period, and the S&P 500 rose 1.9%. Small caps, as measured by the Russell 2000 (RUT) jumped 7% in August, their best month since November of last year, and the best August in 25 years, Dow Jones Market Data shows.

The 200-Day Moving Average and its Role

Turnquist noted in a report to clients that “Since 1950, if the S&P 500 enters September above its 200-day moving average, the month sees an average gain of 1.3%, with gains occurring 60% of the time. Conversely, if the index enters September below its 200-day moving average, September sees an average loss of 4.2%, with gains occurring only 15% of the time.” The 200-day moving average is often seen as a key indicator of the long-term overall trend of a stock index. FactSet data shows the S&P 500 closed at 6460.26 on Friday, well above its 5957.05 200-day moving average.

Macroeconomics and Other Market Factors

Turnquist added that while September seasonal weakness might be a “contributing factor” in weighing on stock market performance, ultimately, other, “more impactful macroeconomic forces,” such as the health of the U.S. economy and corporate earnings, will determine where the stock market is headed. Key events that will influence U.S. stock market performance in September include: this week’s August non-farm payrolls report (which will reveal whether the cooling labor market seen in July has accelerated), and the Fed’s Sept. 16–17 policy meeting (where markets widely expect policy makers to cut interest rates by 25 basis points, bringing the rate range to 4% to 4.25%). Turnquist said that while a September rate cut seems likely, the core uncertainty is “whether that will be a dovish or hawkish rate cut,” and that depends on the inflation and jobs data that comes out between now and mid-September. “Overall, there is still a lot of uncertainty heading into September.” He also pointed out that the stock market might be in short-term overbought territory, “because many of the good news items seem to be fully priced in, like the market’s expectation for an economic soft landing and an avoidance of recession.” “While that pricing is justifiable, I wouldn’t be surprised if we see a round of ‘reality checks’ in the coming weeks, reflecting some of the uncertainty we have to navigate,” he added.

The VIX Index and Low Volatility

Notably, the U.S. stock market was unusually calm in August: the Cboe Volatility Index (VIX), known as Wall Street’s “fear gauge,” fell to a year-to-date low last week. FactSet data shows the VIX index was down 7.8% last month. Turnquist said that this low volatility environment might be “the calm before the storm.” The chart below shows the VIX index has historically tended to rise heading into the fall, with annual highs typically occurring in late September or early October. Turnquist pointed out: “Given where the ‘fear gauge’ is starting from at a relatively low level, we don’t think it’s a bold call to suggest that upside risk to the VIX exists.”