September is historically the worst month of the year for US stocks. It is the only month of the year with a negative return from 1925 to 2019. You can see that in the chart below.
This trend has played out in 2020.
S&P 500 (SPY) was down as much as 10% from the 52-week high but rebounded at the end of the week and is down 7.5% from the 52-week high.
The sell off in the tech heavy NASDAQ has been a little more severe. The NASDAQ 100 (QQQ) was down 14% from the 52-week high and after rebounding this week is down 10% from the recent 52-week high.
Beyond seasonal weakness in September, I see three other factors weighing on stocks.
Stocks were over bought in the short run: US stocks have been on fire for the last six months, delivering a big rebound out of the COVID lows. Tech has been particularity strong. The NASDAQ was up more than 80% from the COVID low. After a solid run higher its normal for shorter-term investors and traders to take some profit off the table.
US presidential election: The US presidential election is 40 days away. It’s a big political event and some more conservative investors have been getting a little more defensive and selling stocks ahead of the event.
Lingering fears over COVID-19: COVID-19 has been a terrible tragedy and I’m really sorry for everyone who has been effected. COVID-19 had a horrific impact on the global economy and the stock market. But in the last six months consumers and markets have moved past peak fear. There are still plenty of uncertainties swirling around COVID-19 and investors are pricing that into stocks.
Despite the recent decline, US stocks are having a good year in the face of a big challenge with COVID-19.
- The NASDAQ 100 is up 26% on the year.
- The S&P 500 is up 1%.
Take a look at the charts below.
Looking forward I remain optimistic on the stock market.
I am expecting more volatility in the next few weeks but I think the worst of the sell off is over.
Moving forward I view weakness in the stock market as an opportunity to buy low.
- September is almost over and US stocks are on the cusp of their strongest six months of the year from November through April.
- The pullback gives investors a chance to buy low.
- The US presidential election will be over in six weeks.
- COVID-19 remains a problem but overall the world and US are headed in the right direction.
- Momentum is higher, path of least resistance is higher.
The Big Picture
This looks like a pretty standard and healthy pullback for the US stock market. This does not look like the beginning of a big meltdown. Ultimately, these pullbacks are usually good for investors because they create an opportunity to buy low.
I’ll be back next week with another update. Until then I wish everyone happiness and prosperity.
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.