Will S&P 500's Record August Signal a September Selloff in 2025?

The recent performance of the stock market in August often sets the tone for September, with historical data suggesting a concerning pattern. In particular, if the S&P 500 rises by more than 1% while setting multiple all-time highs in August, it typically foreshadows negative returns in September. This year, the S&P 500's 1.9% gain and five new all-time highs align with this trend, raising eyebrows among investors.

Last updated: 26 September 2023 (BST)

Key Takeaways

• Historical patterns indicate that strong August performances can lead to September declines.
• August 2025's gains and all-time highs match criteria for potential market downturns.
• September is historically Wall Street's weakest month, with average declines observed.
• Market conditions, including potential Federal Reserve actions, add to the uncertainty.
• Investors should remain cautious based on historical data.

Understanding the August-September Trend

Ryan Detrick, Chief Market Strategist at Carson Group LLC, highlighted a troubling trend in an X post. He pointed out that when the S&P 500 experiences an August rally exceeding 1% and records at least five all-time highs, the following month's performance has been historically poor. The data, spanning from 1950 to 2025, shows that September has never ended positively under these circumstances.

The Data Behind the Trend

According to Carson Investment Research, the statistics are alarming. When August meets the criteria of significant gains and multiple peaks, the average return for September is a decline of 2.3%, with a median drop of 1.9%. Notably, the success rate of achieving positive returns in September under these conditions is a stark 0%.

August 2025 and Its Implications

This year, the S&P 500's performance in August was notable, with a rise of 1.9% to a peak of 6,508 points, alongside five all-time highs. This scenario has raised concerns as it closely mirrors past instances where similar patterns led to September downturns.

Historical Context: Past Patterns and Their Outcomes

Historical data shows that this pattern has held true through multiple instances from 1961 to 2021. For example, the market faced a significant decline in September 2008, which saw an 8.9% drop, and a 4.8% decline in 2021. The recurring nature of these events underscores the potential for investors to face challenges in the coming month.

September: The Month of Declines

September has earned a reputation as Wall Street's worst month. According to Bank of America, the S&P 500 has declined in 56% of September months since 1928, averaging a loss of 1.17%. Paul Ciana, a technical strategist at Bank of America, stated, “September is reliably bad for the broader U.S. stock market.” This historical context adds weight to the caution being expressed regarding September's outlook.

The Impact of Federal Reserve Decisions

The current market conditions are further complicated by potential decisions from the Federal Reserve regarding interest rates. As per the CME FedWatch Tool, there is an 89.7% chance of a 25-basis-point rate cut this month. Such decisions typically influence market sentiment and could exacerbate any downturns in September.

Previous August Hot Streaks and Their Aftermaths

History shows that several Augusts with strong performances have preceded significant September selloffs. For instance:

• In 1987, the S&P 500 gained 3.5% in August, followed by a 2.4% decline in September.
• In 2020, the index rose by 7.0%, only to drop by 3.9% the following month.
• In 2014, an August gain of 3.8% was succeeded by a 1.6% decrease in September.

These examples illustrate the recurring nature of this trend and the risks it poses for investors.

What Investors Should Consider

Given the historical data, investors should approach September with caution. The combination of past performance patterns and current market conditions presents a potentially turbulent month ahead. Here are several considerations for investors:

• Monitor market trends closely and be prepared for potential sell-offs.
• Consider diversifying investments to mitigate risks during this period.
• Stay informed about Federal Reserve announcements and their implications for market movements.
• Review your investment strategy to ensure it aligns with potential market volatility.

Conclusion: Preparing for September

The outlook for September remains uncertain, especially following an August that met historical criteria for a downturn. Investors should remain vigilant, drawing on historical patterns, current market conditions, and potential Federal Reserve actions to navigate what could be a challenging month. As always, maintaining a well-rounded investment strategy will be crucial.

FAQs

What does it mean when August has strong market performance?

Strong market performance in August, particularly with significant gains and multiple all-time highs, often precedes downturns in September, based on historical trends.

Why is September considered the worst month for the stock market?

September has historically seen a higher frequency of stock market declines, with data showing that the S&P 500 has experienced losses in over half of the Septembers since 1928.

What should investors do during a potentially declining month?

Investors are advised to monitor market conditions closely, diversify their portfolios, stay updated on economic indicators, and review their investment strategies in light of potential volatility.

How often do historical trends predict market behaviour?

While historical trends can provide insight into potential market behaviour, they are not guarantees. Current economic conditions and events can significantly influence outcomes.

What role does the Federal Reserve play in market trends?

The Federal Reserve's decisions on interest rates can significantly impact market sentiment and performance, influencing investor behaviour and market stability.