Key Takeaways:
- The S&P 500 snapped a five-month winning streak in August. The drawdown last month was orderly, which we view as a good sign for the health of this bull market.
- With the soft-landing scenario gaining traction, and interest rates backing off their recent highs, buyers stepped back into the market right near support from the August 2022 highs. Technical progress has continued since, leaving 4,600 as the next major hurdle for the S&P 500 to clear.
- While the S&P 500’s monthly winning streak is over, upside momentum may continue. After the end of a five-month winning streak, the market has continued higher over the next six months, generating an average gain of 7.3%.
- Beware of September, historically the worst month for the broader market. However, we have found that seasonal weakness is less pronounced for stocks when the S&P 500 is trading above its 200-day moving average.
The S&P 500 snapped a five-month winning streak in August after stumbling 1.8%. Despite the decline, the pullback in stocks appeared orderly—a good sign for the health of this bull market. Overall trading volume was relatively light across the major U.S. exchanges, implied volatility showed no signs of panic, breadth held up relatively well, and offensive sectors held their leadership status. Perhaps most importantly, the buy the dip crowd stepped back into the S&P 500 right near support from the August 2022 highs. Technical progress has continued since, with the index recently recapturing the June highs and 50-day moving average, leaving the 4,600 area as the next major resistance hurdle to clear.
S&P 500 Technical Setup—On the Rebound
Winning Streak Snapped
While the S&P 500’s monthly winning streak is over, upside momentum may continue. After the end of a five-month winning streak, the market has historically continued higher over the next six months, generating an average gain of 7.3%. In addition, of the six other winning streaks that ended after five months since 1950, all but one period resulted in positive returns over the following six months.
September Spoiler?
As noted in greater detail on yesterday’s blog (Slightly Scary September Seasonals for Stocks), September has been the worst month for stocks going back to 1950. The S&P 500 has posted an average decline of 0.7% during the month and only finished positive around 44% of the time. For additional context, the average monthly gain for the S&P 500 has historically been 0.7%, with about 61% of months producing positive returns.
Of course, this time could be different, and we have fielded several questions related to different seasonality scenarios into September. Two of the most common questions were 1) how does the market perform in September following an up or down August, and 2) how does the market perform in September when it is in an uptrend or downtrend. For the latter, we simply classified an uptrend as the S&P 500 trading above its 200-day moving average into September, and vice versa for downtrends. The table below breaks down the results.
SUMMARY
Stocks have found some support after snapping a five-month winning streak in August. Economic data supporting a soft-landing scenario along with the recent pullback in interest rates have pushed buyers back into the market. The S&P 500 found support near the August 2022 highs and continues to make technical progress toward resistance at 4,600. And while the S&P 500’s monthly winning streak is over, upside momentum may continue. Historically, after the end of a five-month winning streak, the market has continued higher over the next six months, generating an average gain of 7.3%. Of course, September could be a spoiler for this recent rebound, although the S&P 500 has historically ticked higher during September when it enters the month above its 200-day moving average.
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