We are now headed into the home stretch of the year and fortunately for bulls even though September is the worst month of the year, market performance over the next three months is one of the best periods of the year. As shown in the screenshot from our Seasonality Tool below, performance of the S&P 500 over the next week over the past ten years has been fairly weak with a 0.1% median decline. One month performance is slightly better with a modest gain of 1.51%, but 3 months out the S&P 500 has been higher by an average of 6.28%.
Coming off of the long Labor Day week, we wanted to take a look at seasonality around the holiday. As shown below, similar to what our Seasonality Tool is showing, going back to 1928, near term performance of the S&P 500 has been weak after Labor Day with declines that Tuesday after the holiday, the week after and one month after. But by New Year’s Eve, the index is higher by an average of 1.24%. Furthermore, the index has only been up in the weeks after Labor Day less than half of the time, while it is positive 70% of the time by the end of the year.
When it comes to what has happened over the month leading into the holiday weekend, with the S&P falling 1.81% in August but rising 2.8% last week, this year has actually been more of a setup for outperformance relative to seasonal patterns around Labor Day. As shown in the chart below, average performance in the days, weeks, and months following Labor Days that were preceded by declines in the month leading up to the holiday but gains in the week before typically have been stronger than other periods (11 prior occurrences). In fact, the week and month after Labor Day have typically been positive rather than negative after similar scenarios to the current one. Start a two-week free trial to Bespoke Institutional to access our interactive Seasonality Tool and much more.
In the table below, we break down the performance across each of the eleven prior times that this has occurred. The Tuesday Labor Day is actually more consistently negative than other years—which we have ended up see play out this year. Again though, longer-term performance gets stronger and is more consistently positive. By the end of the year, there have only been two years where the S&P 500 was lower after similar price action to the current situation. One of those declines was in 1987 when the S&P fell 23.6% through the end of the year. Needless to say, this was a bit of an outlier.