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September Stock Sell-Off Sets Stage for Fourth Quarter Rally: Historical Patterns Revealed

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Historical Patterns Reveal Fourth Quarter Rally Following September Stock Sell-Off

Common Occurrence: September Sell-Offs

September's unexpected sell-off may have caught many investors off guard, especially after a strong start to the year. However, historical data shows that such pullbacks are actually quite common. Bank of America strategist Ritesh Samadhiya highlighted that since 1950, there have been 15 instances where the S&P 500 rallied over 15% through July, only to experience an average drop of 8% between August and September.

Potential Rebound: Fourth Quarter Gains

The good news is that following these sell-offs, the broader market index typically rebounds. Bank of America's analysis indicates that the S&P 500 has historically seen an average gain of 5% from October through December. Samadhiya further supports this notion, stating that August witnessed a similar pattern with a reversal in global equities after a 5% correction since July. As the summertime blues subside by the end of the quarter, global equity markets may be poised for a high single-digit rise by year-end. The S&P 500 has experienced a decline of over 6% since the end of July, with losses of 1.7% in August and 4.5% in September. Various factors, including concerns about the Federal Reserve's interest rate policies, rising Treasury yields, a strong dollar, and surging crude oil prices, have exerted pressure on stocks during this period.

Historical Perspective and Future Outlook

It is important to note that the market often loses steam between August and September after a strong start to the year. However, historical patterns suggest that this decline is typically short-lived in such years. Investors should consider the potential for a fourth quarter rally based on historical data and the likelihood of market recovery. In conclusion, while September's stock sell-off may have surprised investors, historical analysis provides insights into the potential for a rebound. Past patterns indicate that the market tends to recover following such sell-offs, with the S&P 500 historically showing gains in the fourth quarter. As investors navigate the current market conditions, it is essential to consider historical trends and the potential for a positive market outlook in the coming months.

Fourth Quarter Rally Expected Following Historical Patterns of September Stock Sell-Off

The Norm: September Sell-Offs

The recent sell-off in September may have shocked many investors, particularly given the robust start to the year. However, this phenomenon isn't unusual. Bank of America strategist Ritesh Samadhiya pointed out that, since 1950, there have been 15 instances when the S&P 500 rallied more than 15% through July, only to face an average 8% drop between August and September. This historical trend could be a crucial consideration for new businesses planning their investment strategies.

The Silver Lining: Fourth Quarter Rallies

According to Bank of America's analysis, the broader market index typically bounces back after such sell-offs, averaging a 5% gain from October through December. This pattern suggests that a strong fourth quarter could be on the horizon, potentially benefiting new businesses that weather the September storm. Despite the S&P 500's decline of over 6% since the end of July, historical data suggests a high likelihood of market recovery.

Looking Back to Look Forward

The market often experiences a slowdown between August and September after a strong start to the year. However, this decline is typically short-lived. The historical patterns suggest that new businesses should keep an eye on potential fourth quarter rallies. In summary, while the September stock sell-off may have taken investors by surprise, historical trends indicate a potential rebound. As new businesses navigate the current market conditions, understanding these historical patterns can provide valuable insights for strategic planning in the coming months.
Story First Published at: https://www.cnbc.com/2023/09/28/history-shows-a-september-sell-off-begets-a-fourth-quarter-rally-.html
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