Opinion: September stocks: Volatility and opportunities

Richard Baker

My son crashed hard trying to slalom water ski. We were enjoying the last bit of summer at the lake, and my son decided to attempt to slalom ski after having only skied once before. He planned to kick off a ski and stay up on just one. But time after time, he crashed hard as soon as he kicked his ski off. September stocks know the feeling.

Stock trading volume is low during the summer when most Americans take vacations. It seems that when Labor Day ends, everybody starts trading at once. According to FactSet data, September is one of the year’s highest months for trading volume. But higher trading activity often brings about higher stock market volatility.

Stocks had a big summer, even with a steep drawback on Aug. 5, which became Wall Street’s worst day in two years. The Aug. 5 pullback was either investors showing some concern about the economy or just portfolio repositioning. Most media types chalked it up to portfolio repositioning, but when it happened again on Sept. 3, one had to wonder if there were some underlying market concerns.

Bad month
When stocks fell on the first trading day of September, investors were reminded that September is the only month of the year that is historically negative.

The last four Septembers have been especially bad. Here is a refresher on how the S&P 500 has finished the recent September months: 2023, down 5%; 2022, down 9%; 2021, down 5%; and 2020, down 4%.

The Fed
“This time will be different.” This famous quote might be true in this case. September’s poor record is hard to ignore, but this year, September has the Federal Reserve on its side. This month brings what will probably be the start of the Fed interest-rate-cutting cycle when it meets on Sept. 17-18. Most analysts believe the Fed will cut rates two to three times this year and possibly four times next year. Many even think the September rate cut might be as big as half a percent, according to the CME FedWatch Tool. I doubt we will see that big of a cut, and if we do, the market might get jumpy thinking the Fed is nervous about the economy, too.

If, in fact, stocks are starting a downtrend before the Fed announcement, then it could be a buying opportunity like it was in 2022. In September 2022, when stocks pulled back 9%, it proved to be a great time to buy stocks at a discount. It was a scary time; inflation was peaking, the Fed was raising interest rates and Russia had invaded Ukraine. Those who invested in the S&P 500 in September 2022 made 20% over the next twelve months and almost 55% since then.

It’s way too early to know if this September will be a good time to invest, as this month might provide extremes. Charles Dickens’s quote in Tale of Two Cities might appropriately describe September 2024: “It was the best of times, it was the worst of times.”

Whatever happens in the next few days, the fact is this month started off in about the worst possible way. Hang onto your skis; it is about to get interesting.

My son wouldn’t give up and eventually stayed up on one ski. He was wobbly, but he successfully slalom skied across the lake. It all went perfectly – well, mostly, because his mom was so excited she forgot to push record to video it, much to his frustration. So, the moral of this story is to not give up on this market if it gets difficult because it will be worth it. Just don’t ask my wife to video your success.

Richard Baker, an accredited investment fiduciary, is the founder and executive wealth adviser at Fervent Wealth Management LLC in Springfield. He can be reached at richard@ferventwm.com.