The September weakness continued with the S&P 500 Index 9.6% off the all-time high set on September 2 (as of 9/23/20). It is important to remember that after a 60% rally in the S&P 500—and much more in some of the large cap tech stocks—this type of seasonal weakness is normal and expected. We noted in our blog Historic August Opens Door To Worst Month Of The Year that some type of seasonal weakness could be in the cards.
Speaking of seasonal weakness, the second half of September historically has been one of the worst periods of the year for stocks, as shown in our chart below.
Another angle on this is showing how each day of the year does. Again, we are in the sweet spot for potential rocky seas.
“To see some late-September weakness after a record 60% rally shouldn’t be too surprising,” explained LPL Financial Chief Market Strategist Ryan Detrick. “What might surprise some investors, though, is that after some of the previous best six-month rallies ever, in a lot of cases, the strength continued going out a year.”
As shown in the LPL Chart of the Day, the recent rally was one of the best six-month rallies ever for the S&P 500. Looking at all the previous rallies that gained at least 30%, returns are somewhat muted near term. But going out a full year, prices have typically moved higher, up seven out of eight times a year later.
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