The second half of September is historically one of the weakest times of the year for equities. Last week was the fourth week of September. Going back to 1990, this week has been higher only 4 times out of the past 26, which is just 15.4% of the time. We discussed this seasonality on the blog last week. What did it do in 2016? Well, the S&P 500 actually gained +1.2%. The logical question is, what does it mean when this historically weak week is higher?
Here are all the results for the fourth week of September, the ensuing October, and the rest of the year.
Breaking it down more, there appears to be some strong performance in October and the rest of the year when this historically weak week is higher.
Here are the 22 times this week was lower. The returns in October and the rest of the year are unquestionably weaker under this situation.
Was last week a slight clue for better times ahead for the bulls? It very well could be. Our view, based on our Midyear Outlook 2016,* is the S&P 500 will close near current levels, but volatility could remain high. The good news is this study does little to suggest a major market correction could be coming over the next few months.
*As noted in our Midyear Outlook 2016 publication, we believe the conditions are in place for a solid earnings rebound during the second half of 2016, due to the easing drags from the U.S. dollar and oil, coupled with minimal wage pressures. A slight increase in price-to-earnings ratios (PE) above 16.6 is possible as market participants gain greater clarity on the U.S. election and the U.K.’s relationship with Europe, and begin to price in earnings growth in 2017. Following several quarters of earnings declines, a turnaround in growth should support our forecast for mid-single-digit gains for stocks in 2016.
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
The economic forecasts set forth in the presentation may not develop as predicted.
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The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial LLC.
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