“Summer has come and passed, the innocent can never last, wake me up when September ends.” -Wake Me Up When September Ends by Green Day
August was quite the rollercoaster, but in the end the S&P 500 added 2.3% for its fourth consecutive monthly gain. On top of that, all four months gained at least 1%. As we noted many times the past few months, the best three months of the year during an election year have been June, July, and August. Well, that played out nicely once again, with the S&P 500 up 7.0% in the summer months this year, right in line with the 7.3% average. Many told us to be fearful and expect summer weakness, but we held firm and expected a nice rally and that fortunately has happened.
Are we still bullish? Yes, we remain overweight equities, which is where we have been since December 2022. But we can’t ignore the potential for some pre-election jitters and seasonal weakness over the coming two months. September has been the worst month of the year the past 10 years, 20 years, and since 1950. In election years it is the third worst month (February and October have been worse).
Here’s a better look at election years and monthly returns. August bucked early month weakness this year and turned in a solid gain, but the next two months are notorious for weakness in election years. The good news? Year-end rallies are quite normal after the election is out of the way.
What happened recently after a long monthly win streak heading into September? There was a five-month win streak heading into September in 2020 and stocks fell nearly 4%. There was also a seven-month win streak last year at this time that ended with a nearly 5% drop in September.
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Here’s a nice way of showing that election years tend to rally in the usually weak summer months (like we saw in 2024), but also tend to peak right around now with weakness into late October perfectly normal.
Lastly, this year and last year look a lot alike. This is a sample size of one, but it’s worth noting last year saw weakness into late October before a furious end of year rally.
One more. Think about the last two elections. 2016 and 2020 both saw stock weakness ahead of contentious elections, only to see stocks soar at the end of the year once the election uncertainty was behind us. So buckle up, as we wouldn’t be surprised at all to see that pattern play out once again this year.
For more content by Ryan Detrick, Chief Market Strategist click here.
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