The SPDR S&P 500 ETF Trust (NYSE:SPY) traded higher by 0.2% on Wednesday, kicking off September on a high note after seven consecutive months of gains. Unfortunately, September has historically been the worst month for the stock market, so the S&P 500’s seven-month winning streak could be in jeopardy.
September Swoon? The bull market has been incredibly strong so far in 2021, and the S&P 500 clearly has momentum heading into September. However, LPL Financial Chief Market Strategist Ryan Detrick said the month of September has a track record of bringing market momentum to a screeching halt.
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“Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September,” Detrick said on Tuesday.
The chart below includes S&P 500 historical returns by month since 1950, 2001 and 2011 and shows September is the worst month of the year and the only one that has produced negative overall returns in each of the three time periods.
Buy The Dip: Detrick said the S&P 500 hasn’t had even a 5% correction since October 2020, and stocks can’t go higher uninterrupted forever. Fortunately for investors, LPL remains bullish on the S&P 500 over the longer term, and Detrick said investors should be looking to buy the dip on any significant seasonal weakness.
LPL also took a closer look at historical seven-month win streaks for the S&P 500. After past seven-month win streaks, the S&P 500 has generated a positive return over the next six months 13 out of 14 times and averaged an impressive 7.8% return during those six months.
Benzinga’s Take: Last year’s 10% S&P 500 September pullback was an excellent buying opportunity, and another September pullback would likely be another great chance to buy the dip.
Investors should be prepared with a watch list of stocks they are interested in buying before a sell-off occurs so they are prepared to make rational, well-considered buying decisions in the heat of a market pullback.
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