By now, everyone probably knows that September tends to be "the cruelest month." Since 1928, history shows that September's return is by far the worst of the year, with the month averaging a loss of -1.1%. And the odds of a decline during September are also strong since the month has seen losses 56% of the time (39 have been up, 49 down).
It is also worth noting that our cycle composite (which combines the 1-year seasonal, 4-year Presidential, and 10-year decennial cycles) continues to suggest that a corrective phase should be in effect until mid-October. So, what has Ms. Market decided to do in the face of all this? Make new all-time highs, of course!
In my opinion, the key drivers to the current seasonal divergence is (a) a universal "sigh of relief" in response to the debt ceiling being "handled" (for now), (b) Irma's impact being less than expected, and (c) tensions with North Korea being walked back a bit. In response, traders appear to have covered shorts, fund managers are putting money to work, and everybody looks to be "buying the dip."
Another historical tidbit that my friend Paul Schatz discovered is that the September swoon tends to depend on whether or not the market has been strong as the month began. In a recent blog, Paul notes that when the S&P 500 begins the month above its long-term moving average (150-day simple), September's average decline of -1.1% turns into a gain of +0.5%.
I also find it interesting that the recent pullback seen in mid-August (which measured -2.2% on the S&P 500) would be the second shallowest decline seen in the second half of calendar years since 1980. In fact, per Ned Davis Research, over the last 37 years, the smallest correction seen between August ...