September or the first month of autumn historically has a tendency to be the worst month for stock market returns. The reason why it happens is still an unsolved mystery.
But this time, after weeks of research, market analysts have finally figured out why stocks fall in September. They may not have an answer for the historically weak stock market numbers but they do have an idea of this month.
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Reasons Why Stocks Fail in September
Amid the soaring inflation, the U.S. Federal Reserve is continuing to increase the interest rates. In addition to that, it is also going to accelerate the pace at which the balance sheet is reduced. This double-tightening is expected to increase the volatility of the market, leading to stock market loss.
Another reason can be the close correlation between S&P 500 and Fed’s balance sheet. For instance, in March 2020, the S&P 500 rose remarkably in the wake of the Fed’s balance sheet. This year, the increased rates of the Fed balance sheet began to flatten, which is why the S&P 500 is struggling.
What to Expect Next in the Stock Markets?
Earlier when the S&P 500 entered September, they used to be at a loss on average for the rest of the year. Also, history is witness to how stocks act during September month.
Since 1983, it’s almost the same — the first part of September would be uneventful, then stocks will rally in the middle and finally, stocks will begin to lower steadily from the beginning of October.
Indeed, it can’t be assured that stocks will behave the same way in the future. But what you can do as an investor is to keep an eye on the Fed and determine in which direction it might be moving forward.
What Is the Best Thing to Do Now?
The best thing to do at the moment is to do nothing at all.
Justin McCurdy, executive director and financial advisor at Manhattan West, says “An investor should not change their investment strategy purely to avoid losses associated with a certain season.” So, while creating an investment strategy, just ensure that it aligns with your objectives, timeline and risk tolerance.
Instead of changing your strategy, make sure to have a diversified portfolio that can help you deal with the ups and downs that may arise. You should only make changes to your portfolio if the current one is no longer suitable.
