• The S&P 500 has a history of underperforming in September.

• Volatility rises within the month as traders reposition their portfolios.

• Several market-moving events could make this September especially unique.

As August closes out the summer season, the S&P 500 may soon take its own holiday.

On average, September has been the worst month for the benchmark index going back so far as 1928. Not only do stocks repeatedly underperform, it is also common for the market to finish the month with a negative return.

In keeping with CME Group data from last 12 months, the S&P 500 has lost ground in 55% of Septembers over the the last century. More recently, the index has dropped for the last 4 years, Deutsche Bank added.

An enormous offender is the upper trading volumes as Wall Street gets back to work after Labor Day.

With more traders out on vacation throughout the summer months, stock activity tends to lag, leading to stronger market performance amid thinner trading volumes.

SoFi’s Liz Young Thomas noted that S&P 500 monthly trading volumes average 15.2 billion shares between June and August. But when investors return to their desks in September, volume jumps to 17.2 billion shares.

“Individuals are coming back in and beginning to trade again. You have just got more activity available in the market, which may result in volatility,” the top of investment strategy told Business Insider, adding: “Just naturally, people might take a have a look at portfolios and say: ‘I’m a bit obese the Mag Seven, or I’m a bit obese large-cap equity, or I’m just obese equity typically.””

September experiences a few of the 12 months’s most volatile swings, and a couple of% moves in either direction are a norm for the S&P 500, she said. Although volatility continues through the autumn, September stands out for the incontrovertible fact that downside swings widely outweigh upside momentum, she said.

What to anticipate this 12 months

Just a few market-moving events could make this September unique.

For example, all eyes are on the Federal Reserve’s policy meeting on September 18. Rate of interest cuts are widely expected, a move that is generally framed as positive for the bull rally.

Nonetheless, in line with LPL Financial’s Adam Turnquist, this might shift based on the upcoming August jobs report due out on September 6.

If the labor print is weaker than expected, the Fed might pursue deeper rate cuts, which can be an acknowledgment of a weakening economy.

“Within the event we get a bit bit higher economic data next week, the soft landing narrative gains a bit bit more momentum, and we potentially buck the losing streak we have seen over the previous few years in September,” the chief technical strategist Adam Turnquist told BI, but outlined that downside risk looks more probable.

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Beyond September, election jitters can only extend seasonal volatility.

SoFi’s Young Thomas noted that heightened volatility peaks in mid-October during election years, not at the tip of September.

Nonetheless, that is incessantly followed by a relief rally once the outcomes are known, she said.

The best way to prepare

Portfolios should not be readjusted due to seasonal shakiness, each expert told BI — that is each hard to forecast and never a fundamental long-run input.

But for those occupied with the months ahead, Young Thomas suggested that investors listen to how the trading environment might soon change.

“You’ve to take a seat back and think: ‘Well, okay, what typically does well during a steepening yield curve, yields falling and a falling dollar?” she said, referring to a few outcomes implied by an rate of interest cut.

On this context, dividend-paying stocks might be worthwhile, she said. As yields fall, Treasurys will lose their luster, sending investors in quest of other income sources. Dividend stocks can profit, she said, adding that they are typically concentrated in utilities and staples.

Meanwhile, dollar depreciation could boost healthcare, as a sliding greenback should prompt medical exports to rise, she said. Elevated trade activity would also profit the aerospace and defense sectors.

Turnquist also noted that investors might do well to purchase the seasonal dip.

“Buying the September or October lows has been a superb trade,” he said. “October, things start to enhance, after which you could have this November, December, year-end rally, typically very high average returns and high positivity rates for those months.”

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