Market Outlook for September

The equity market is facing potential risks of weaker seasonality in September as the historically strong period from June to August concludes, according to Bank of America.

From June to August (as of August 23), the market rose 6.8%, outpacing average returns of 3.2% for all years and 7.3% for Presidential election years.

September is recognized as having the weakest seasonality of the year. The S&P 500 (SPX) has recorded gains only 44% of the time in September, with an average return of -1.20%.

During Presidential election years, September and October returns are similarly poor, averaging -0.46% and -0.34%, respectively. However, these trends typically precede a post-election rally towards year-end.

Bank of America’s technical strategists are using the broad-based NYSE and NASDAQ Composites as key “Dow Theory” indices to analyze the health of the cyclical bull market that commenced in late 2022.

Both indices recorded higher highs, signaling bullish confirmation into early July. However, while the NYSE achieved another high last week, the NASDAQ did not, indicating a bearish non-confirmation ahead of the weaker market seasonality for September.

Strategists noted the emergence of bearish upside exhaustion signals from daily indicators—Demark 9s and 13s—across numerous indices, including SPX, S&P 500 equal weight (RSP), NYSE Composite (NYA), NASDAQ 100 (NDX), NASDAQ Composite (CCMP), and Dow Jones Industrial Average (INDU). This could reinforce the anticipated weaker U.S. equity market in September and October.

Signals on SPX, NDX, and NASDAQ remain solid, but risks are identified for NYA and RSP, particularly after the recent all-time highs.

Additionally, Bank of America observed bearish daily Demark upside exhaustion signals on August 21 and 22, aligning with a bearish engulfing pattern on the S&P 500 just below the July peak at 5670.

These strong signals are present below Demark resistance at 5708; however, breaking tactical support around 5560 is essential to confirm the bearish pattern. Should 5560 hold and the SPX surpass these bearish signals, it may lead to a movement toward 6000, as per strategists’ analysis.