As August has come to a close, investors are reflecting on what was truly an emotional roller coaster of a month. The historic volatility surge earlier on left many wondering what would come next. While some boldly took advantage of a brief buying opportunity, others are more cautious as we enter September. With the S & P 500 sitting less than 1% away from its all-time high set in July, the anticipation for the month ahead is mixed.
Historical Trends and Market Outlook
September has a reputation for being a challenging month for the stock market. According to the Stock Trader’s Almanac, it is the month when the market’s three leading indexes tend to perform the poorest. Yardeni Research’s data also shows that, on average, the S & P 500 index has experienced a 1% decline during the month of September from 1928 through 2021. These gloomy historical trends loom in the background as investors prepare for what may lie ahead in the coming weeks.
Fed Meeting and Interest Rate Cut Expectations
The Federal Reserve’s upcoming critical meeting is set to take place less than twenty days from now. Market expectations are leaning towards the Fed initiating an interest rate cutting campaign. However, there is debate on the extent of the cuts, with some believing the Fed will only opt for a conservative quarter-point cut. This cautious approach may serve to temper recent market exuberance.
In light of the anticipated market conditions in September, some investors are considering hedging at the current elevated level in the S & P 500 to mitigate downside risk. Others are looking to capitalize on potential pullbacks through option spread strategies. For example, a risk reversal strategy involves selling options at all-time high levels while also adding another leg to the spread to define potential risks if markets resume an upward trajectory.
As we move into September, investors are bracing themselves for what may lie ahead. While historical data and market indicators suggest a challenging month, strategies such as hedging and option spread trades offer opportunities for investors to navigate the choppy waters of the September stock market. Ultimately, each investor must carefully consider their own risk tolerance and investment objectives before making any financial decisions in the month ahead.