The US stock market enters September with strong momentum but faces a familiar seasonal test, as the S&P 500 heads into a month that has historically delivered the weakest average returns of the year.
The benchmark gained 2.6% in August, its strongest August performance since 2021, and is up 12.3% in 2026.
That puts the index on track for a fourth consecutive annual gain.
Yet September has long been a difficult period for US equities.
Dubbed the “September Effect”, the phenomenon refers to the tendency for stock markets, particularly the S&P 500, to underperform during September.
Since 1928, the S&P 500 has recorded an average September decline of 1.1%, according to Dow Jones Market Data.
Technical indicators, however, suggest the current setup may be stronger than the seasonal pattern implies.
S&P 500 remains well above key technical level
The S&P 500 fell 0.3% on Monday to 7,686.14, but remained comfortably above its 200-day moving average of 7,122.92, according to FactSet data.
That could prove important during September.
“September’s weakest returns have occurred when the S&P 500 begins the month below its 200-day average, which is not currently the case,” according to a research note from Oppenheimer & Co. over the weekend, MarketWatch reported.
Oppenheimer found that since 1950, the S&P 500 has averaged a 0.2% gain during September when it starts the month above its 200-day moving average.
By comparison, the index has averaged a 3% decline when entering September below that level.
The distinction suggests that while September’s reputation for volatility remains intact, the market’s current technical position could reduce the risk of a major selloff.
Ari Wald, head of technical analysis at Oppenheimer, said there has been no “major breakdown” in the US stock market.
That could at least help the benchmark avoid “a big negative scenario” during the month, he said in a phone interview with MarketWatch.
Strong August gives bulls another reason for optimism
The S&P 500’s performance in August adds to the bullish case.
The index gained 2.6% during the month, its best August performance since a 2.9% increase in August 2021.
It was also the benchmark’s strongest monthly gain since May, when it rose 10.4%.
The index is now only 1.4% below its Aug. 13 record closing high of 7,798.99 and has gained 19% over the past 12 months.
DataTrek Research co-founder Nicholas Colas believes the recent rally could provide a favorable backdrop for the months ahead.
“The next 100 trading days take us through the end of January 2027, across both a notoriously volatile September” and seasonal fourth-quarter strength, Colas said in a note, as reported by MarketWatch.
The S&P 500 climbed about 21% over the 100 trading days between its March 30 closing low and Aug. 21, a move Colas described as “statistically significant.”
Although forward 100-day returns following rallies of that magnitude have “slipped in the current bull market,” they have nevertheless remained positive, he said.
Seasonal data also offers a more positive signal
Other market strategists see reasons not to overstate September’s historical weakness.
Ryan Detrick, chief market strategist at Carson Group, pointed to a particular combination of market conditions that could make 2026 different from the typical September.
When August finishes higher and the year’s gain is between 10% and 17.5% — both conditions that apply this year — September has averaged a 1.0% gain since World War II, according to Benzinga.
Detrick also found that the final four months of the year finished higher in 10 of 11 comparable instances, with an average gain of 5.6%.
However, he warned that the current midterm-election-year cycle could still generate turbulence during August and September.
He identified 7,610, the S&P 500’s June 2 peak, as an important support level for investors to watch.
A sustained break below that level could weaken the technical picture and challenge the market’s recent upward trend.
Inflation and oil prices could complicate the outlook
While technical and seasonal indicators remain relatively supportive, September is likely to bring greater focus to the macroeconomic environment.
With S&P 500 companies nearly finished reporting second-quarter earnings, Jack Janasiewicz, a multiasset portfolio manager at Natixis Investment Managers, told MarketWatch that economic data will increasingly drive market direction.
Investors will be watching inflation particularly closely, he said, as price pressures remain elevated enough to keep the possibility of another Federal Reserve interest-rate hike on the table.
That creates a potential headwind for equities following their strong run this year.
Geopolitical developments are another source of uncertainty.
US stocks fell Monday as investors monitored heightened tensions in the Middle East and rising oil prices.
The US and Iran exchanged strikes over the weekend, marking the first significant military action in the conflict in more than a month.
Higher oil prices could add to inflationary pressures, complicating the Federal Reserve’s policy outlook and potentially increasing volatility in equity markets.
Complacency becomes another risk
Investors are also watching market sentiment for signs that the rally has become too comfortable.
CNBC’s Mike Santoli pointed to the CBOE Volatility Index, or VIX, falling below 15 as a signal worth monitoring.
Santoli described the low volatility reading as “eerie complacency”, particularly because seasonal patterns would normally point toward higher volatility around this period.
The concern is not necessarily that low volatility predicts an imminent market decline.
Rather, unusually calm trading can leave markets more vulnerable to sudden shocks when investors are positioned for continued stability.
For now, however, technical indicators remain supportive.
“Bull markets don’t die of old age, as they say,” Oppenheimer’s Wald told MarketWatch.
From a technical perspective, “we do still see below-average market-top risk,” he said.
“We do think the setup is there for that fourth-quarter rally into 2027.”
The coming weeks will test that optimism.
The post Why the S&P 500 could defy the ‘September Effect’ this year appeared first on Invezz
