September Doesn’t Need to Be Scary for Stocks. This Year Could Prove It.

The Russell 2000 had its best August since the year 2000, helped by expected interest rate cuts. (Michael Nagle/Bloomberg)

September has a fearsome reputation in the market, but it can be easy to dismiss concerns about monthly performance as superstitious or “astrological,” as Trivariate Research Founder Adam Parker puts it.

He changed his tune after running the numbers.

When it comes to S&P 500 performance over the year, the index is a Capricorn, with January the winner historically. September is the clear laggard, with average losses of 1.17%, compared with a 0.81% gain for the other months.

That nearly 2% differential is statistically significant any way you slice says Parker.

Still, he isn’t ready to become a horoscope habitué just yet. He argues it may simply be that traders come back from summer vacation, rerun their models, and realize their earnings per share estimates are too rosy for the second half of the year. Throw in some mid-quarter updates and conferences and “it is possible this is not just something that started with some random events and geopolitical situations that morphed into a self-fulfilling prophecy.”

The good news is that if wobbly EPS is to blame, this year could buck the trend. In fact, bottom-up EPS consensus estimates are higher today at $269 than they were in May, at $263, a departure from historical precedent.

That is no small feat given the ongoing uncertainty around tariffs and other worries. Even when it comes to consumer stocks that haven’t seen the gross margin resilience of other areas, Parker believes investors can still win by going big.

“Scale and dominant positioning appear increasingly critical for sustaining growth and profitability, reinforcing the long-term advantage of ‘Consumer Mag 7’ leaders like Walmart and Costco over sub-scale peers such as Target and Lululemon ,” Parker says.

By being selective, investors can stay in the market, even if September does turn stormy. And Parker isn’t the only one who thinks investors can escape the month’s curse this year if they are choosy.

Wedbush Securities analyst Seth Basham argues the market is poised for additional gains, despite tariff pressure and mixed signals about the health of middle-income consumers.

Although some might be worried about large-cap tech stocks’ recent August underperformance, he argues that it is actually a good sign that the rally is broadening out. The small-cap heavy Russell 2000 had its best August since the year 2000, helped by expected interest rate cuts, and stock pickers have plenty of options across growth and value.

Even within tech itself, Basham sees continued opportunities, citing physical artificial intelligence plays such as Serve Robotics, and software companies that aren’t being steamrolled by AI, such as MongoDB and Snowflake.

Ultimately, although “volatility could rise ahead of a looming government shutdown in what seasonally is a weaker performing month,” Basham argues that improving breadth and rising liquidity are positives for the year-end market outlook.

On the technical side, Evercore ISI Julian Emanuel makes much the same point. He writes that the S&P 500 is on track to reach 7750 by the end of 2026, bolstered by the AI revolution.

Of course that won’t be a straight shot up, but he, too, argues investors should take advantage of the dip.

“‘Scares’ are a feature of Tech innovation-driven Bull markets,” he writes. “We continue to view a near term pullback as [the] base case…and a buying opportunity.”

Only time will tell if this month will be a September to remember, but the long-term picture looks bright. After all, it will be New Year’s before we know it.

Write to Teresa Rivas at teresa.rivas@barrons.com