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September Weakness in the Stock Market

September Weakness in the Stock Market

October 01, 2021

The economy is rolling along with U.S. companies reporting strong earnings for the second quarter of 2021. So why has the US stock market been pulling back the last few weeks? There are areas of concern for investors but also positives factors. We'll examine both and the history of September weakness.

In this blog, you’ll learn:

  • What are Investor Areas of Concern?
  • Historical Perspective of September Stock Market Returns
  • Are There Positive Factors that can Push the Market Higher?

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September Weakness in the Stock Market

The September return for the S&P 500 has been the weakest of any month, with an average return of -0.7%, from 1926 to August 2021. Last September, we saw a pullback in the S&P 500 and return of -3.8%. September 2021, the S&P return was -4.6%, as reported by Morningstar. A pullback at this time of year for the US stock market is common, but the reasons can change from year to year.

September is Historically the Worst Month for U.S. Stocks

Stock Market Seasonality - Historical September Weakness

Source: BlackRock - Student of the Market - 09/13/2021

What are Investor Areas of Concern?

Some of the areas of concern for investors the past few weeks include:

  • September is seasonally a weak time of the year
  • Valuation of the stock market is getting high based on historical comparisons
  • A very large real estate company in China is nearing bankruptcy with over $300B in debt
  • Some companies are having trouble with their supply chain and the lack of parts is limiting the production of their final products. For example, U.S. car manufactures have had to reduce production of their cars in recent months because they could not get enough semiconductors
  • Companies are reporting labor shortages and are unable to hire the workers they need
  • U.S. Federal Government debt ceiling will need to be increased in the next few weeks by Congress since the funding for the government in recent years has had more spending than revenues, thus adding to the federal deficit. Congress seems to be having trouble reaching agreements
  • Uncertainty of what Congress will decide for the Infrastructure Bill, Federal Government budget Bill, and further stimulus
  • Rise of COVID cases the past few months due to the Delta Variant
  • Uncertainty about the next steps to be taken by the Federal Reserve, as to when they will reduce buying bonds and raise interest rates

After a large move up in the stock market, we think it is ready for a pullback and consolidation. There are also so many positives, that we’re looking for a relatively small correction.

Are There Positive Factors that can Push the Market Higher?

We see significant positive factors that can push the market higher going into the end of the year, including:

  • Year-end is seasonally a strong time for the U.S. stock market with lots of holiday spending by consumers
  • Relatively low interest rates
  • Q2 reported strong earnings are expected to continue through the end of the year
  • Possibility of the stimulus of the U.S. Federal Government continuing through next year

In late September, there were several positive events:

  • The large Chinese Real Estate company made their debt payment, avoiding bankruptcy, for the moment
  • The U.S. Federal Reserve confirmed their earlier announcements that they plan to keep interest rates at the current low rates until 2023
  • Another major risk factor was averted yesterday when the House and Senate passed a bill to fund the U.S. Federal Government until December 3
  • The next major risk factor will be when the Federal Government reaches the debt ceiling around October 18 and will need to be extended. (We are watching this situation very carefully)

Positive Opportunities

Going into September, we increased cash in client accounts. Now we are looking for opportunities to put the extra cash to work for our clients. Talk with your Wealth Manager if you have questions about the stock market or your portfolio.


Financial Journey Partners

Financial Journey Partners is Here to Help You

Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.

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