S&P 500 Analysis: Historical Trends Point to Tough September for US Stocks

U.S. Stock Futures Decline as September Looms with Seasonal Headwinds

U.S. stock futures edged lower on Tuesday, signaling a cautious start to September as traders brace for what has historically been a challenging month for equities. This follows a strong yet turbulent August, where markets recovered from early losses but now face renewed uncertainty with the potential for increased volatility.

At 12:30 GMT, Dow Futures are trading 41446.00, down 207.00 or -0.50%. S&P 500 Index Futures are at 5633.25, down 27.75 or -0.49% and Nasdaq 100 Index Futures are trading 19505.00, down 118.00 or -0.60%.

August Market Recap

Despite the early August sell-off, which was driven by fears of a U.S. recession and unwinding of popular hedge fund positions, major U.S. indices managed to finish the month in positive territory. The S&P 500 led the gains with a 2.3% rise, marking its fourth consecutive monthly advance. The Dow Jones Industrial Average added 1.8%, while the Nasdaq Composite posted a more modest 0.7% increase.

The market’s recovery in the latter half of August was supported by better-than-expected economic data, which alleviated some recession concerns. As Deutsche Bank’s macro strategist Henry Allen noted, the return of market calm after August 5 was due in part to this improved economic outlook. However, the resilience shown in August is now set against the backdrop of September’s notorious volatility, with traders remaining cautious as the month begins.

Focus on Economic Data and Earnings Reports

Investors are now turning their attention to key economic indicators, particularly the August jobs report, which will be released on Friday. This report is crucial as it provides the Federal Reserve with one last look at the labor market before its September 17-18 meeting. Recent labor market data has been mixed, with an unexpected rise in the unemployment rate last month to 4.3%, raising doubts about the Fed’s rate path.

In addition to the jobs data, this week will see several important earnings reports, particularly in the tech and retail sectors. Broadcom’s earnings on Thursday are highly anticipated following its recent stock split, especially after Nvidia’s earnings failed to impress despite beating expectations. Other tech companies reporting this week include Hewlett Packard Enterprise, Zscaler, and Samsara. On the retail side, Dollar Tree, Big Lots, and Dick’s Sporting Goods will release their results, with investors keen to gauge consumer spending trends.

Morgan Stanley’s Cautious Outlook

Morgan Stanley’s strategist Michael Wilson has advised caution, predicting minimal returns for the S&P 500 over the next 6-12 months unless the Federal Reserve enacts more aggressive rate cuts or other forms of policy stimulus are introduced. Wilson’s outlook underscores the uncertainty that lies ahead for equity markets, particularly with September historically being a tough month for stocks. FactSet data shows that the S&P 500 has lost an average of 2.3% in September over the past decade, making it the worst-performing month for the index.

Market Forecast

Given the historical underperformance of stocks in September and the upcoming critical economic data, the market sentiment is leaning towards a bearish outlook in the short term. The potential for increased volatility is high, particularly if the labor market data surprises to the downside, further complicating the Fed’s decisions. Traders should prepare for a challenging month, with a focus on defensive strategies and quality assets to navigate potential downturns.

Technical Analysis

E-mini S&P 500 Index traders are concerned about two things as we start the typically volatile September month. The first is a new high close. The all-time highest close is 5717.25. The second is the 50-day moving average at 5544.83 on Monday.