It’s been a positive – if somewhat bumpy – year for US equities, with the S&P 500 Index (S&P 500) up about 17% in 2019, despite pullbacks of about 7% in May and August. The robust performance of the US stock market isn’t surprising given the US economy has grown about 2.5% year-to-date, corporate profits are up year over year (albeit modestly), unemployment is low, consumer confidence is high, and inflation is muted. Brinker Capital entered 2019 optimistic on US stocks and that thinking holds. However, we wouldn’t be surprised if equities struggled in September.

While October seems to get all the credit (if that’s the right word) for being the spookiest market month of the year – think the ‘29 Crash, the ‘87 Crash, and Halloween – September has historically been the  worst month for US equity returns. From 1928 through 2017 the S&P 500 has lost an average of 1% in September, and since 1948 the index has produced a positive return in September just 44% of the time (the lowest percentage of any month).

No one knows why September has proven to be such a difficult stretch for stocks, though the month
lands in the seasonally weak May to October period (“Sell In May And Go Away”). Catalysts for September weakness this year include US/China trade relations, monetary policy (will the Federal Reserve disappoint the market when it meets later this month?), and European politics (the latest – and possibly final – Brexit deadline is fast approaching and political instability in Italy will likely exacerbate that country’s increasingly tenuous relationship with the EU).

Market drawdowns are never fun, but they happen and often serve a productive purpose, including
improving valuation and tamping down overly optimistic investor sentiment. As long as monetary
policy, fiscal policy, and economic fundamentals are broadly supportive of risk assets (as they are today), drawdowns should be taken in stride and viewed as potential buying opportunities.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Tagged: Tim Holland, market perspectives, weekly wire, S&P 500, US equities, US/China trade