September Market Warning: Bank of America Predicts Weaker Seasonality for U.S. Equities
The equity market may face turbulence in September as the strong performance period from June to August concludes, Bank of America (BofA) warned on Monday.
From June to August, the market has surged 6.8% as of August 23, surpassing the average returns of 3.2% for all years and nearing the 7.3% average seen during Presidential election years. However, September is historically the weakest month for the S&P 500 (SPX), with gains recorded only 44% of the time and an average return of -1.20%.
In Presidential election years, both September and October have shown similarly unimpressive returns, averaging -0.46% and -0.34%, respectively. Despite this, these months often precede a post-election rally toward the end of the year.
BofA’s technical strategists are closely monitoring the broad-based NYSE and NASDAQ Composites as key indices under the "Dow Theory" to assess the health of the cyclical bull market that began in late 2022. Both indices reached higher highs, offering bullish signals into early July. However, while the NYSE hit a new high last week, the NASDAQ did not, creating a bearish non-confirmation from early July to late August, just as weaker seasonality looms for U.S. equities.
Additionally, bearish signals from daily indicators, such as Demark 9s and 13s, across several indices—including the SPX, S&P 500 equal weight (RSP), NYSE Composite (NYA), NASDAQ 100 (NDX), NASDAQ Composite (CCMP), and Dow Jones Industrial Average (INDU)—indicate a tactical risk that could exacerbate weaker seasonality in September and October.
"In summary, the signals on the SPX, NDX, and NASDAQ remain robust but are at risk on the NYA and RSP due to new all-time highs for those indices," the strategists noted.
Moreover, BofA highlighted bearish daily Demark upside exhaustion signals on August 21 and 22, aligning with a bearish engulfing pattern on the S&P 500 just below the July peak at 5670. These signals are potent below Demark resistance at 5708, but a break of tactical support near 5560 is needed to confirm the bearish pattern. Should 5560 hold and the SPX overcome these bearish signals, it could pave the way for a move towards 6000, BofA strategists stated.
Analysis Breakdown
What is this about?
- The article discusses the potential risks for the U.S. equity market in September, according to Bank of America.
Key Points:
- Historical Performance: The market typically performs well from June to August but weakens in September.
- Current Year Performance: As of August 23, the market has risen by 6.8%.
- September Weakness: Historically, September has the weakest seasonality, with the S&P 500 gaining only 44% of the time and an average return of -1.20%.
- Presidential Election Years: Returns are similarly weak in September and October of Presidential election years, but usually followed by a year-end rally.
- Technical Indicators: Bank of America uses the NYSE and NASDAQ Composites to gauge the market's health. Bearish signals are emerging, indicating potential risks.
How Does This Affect You?
- For Investors: Awareness of the potential for weaker market performance in the coming months could influence your investment strategies.
- For Traders: The bearish indicators might suggest caution and a more defensive approach.
- For General Public: Understanding market seasonality helps in making informed financial decisions, whether it’s investing in stocks, mutual funds, or other financial instruments.
By breaking down these insights, even someone with minimal financial knowledge can grasp how market seasonality could affect their investments and financial planning in the near term.