The S&P 500 enters September with notable momentum, but the month's historical reputation as the weakest for US equities raises questions about whether the rally can persist. The benchmark index gained 2.6% in August, its best performance for that month since 2021, and is up 12.3% year-to-date in 2026. This puts the index on track for a fourth consecutive annual gain.
September has long been a challenging period for stocks, a phenomenon known as the "September Effect." Since 1928, the S&P 500 has averaged a 1.1% decline in September, according to Dow Jones Market Data. However, technical indicators suggest the current market setup may be more resilient than the seasonal pattern implies.
Technical Support Above Key Moving Average
The S&P 500 closed at 7,686.14 on Monday, down 0.3%, but remains comfortably above its 200-day moving average of 7,122.92, according to FactSet data. This positioning could be crucial. Oppenheimer & Co. noted in a research report that September's weakest returns have historically occurred when the index starts the month below its 200-day average, which is not the case now. Since 1950, the S&P 500 has averaged a 0.2% gain in September when beginning the month above that level, compared to a 3% average decline when starting below it.
Ari Wald, head of technical analysis at Oppenheimer, told MarketWatch that there has been no "major breakdown" in the market, which could help avoid a "big negative scenario" during September. This technical support provides a buffer against the seasonal headwind.
Strong August Bolsters Bullish Case
The index's August performance adds to the optimistic outlook. It was the strongest monthly gain since May, when the index rose 10.4%. The S&P 500 is now only 1.4% below its record closing high of 7,798.99 set on August 13, and has gained 19% over the past 12 months. Nicholas Colas, co-founder of DataTrek Research, highlighted that the recent rally could provide a favorable backdrop for the months ahead. He noted that the next 100 trading days, which extend through the end of January 2027, encompass both a volatile September and seasonal fourth-quarter strength. The S&P 500 climbed about 21% over the 100 trading days between its March 30 closing low and August 21, a move Colas described as "statistically significant." While forward 100-day returns following such rallies have "slipped in the current bull market," they have remained positive.
Seasonal Data Offers a Silver Lining
Other strategists also see reasons to temper the September gloom. Ryan Detrick, chief market strategist at Carson Group, pointed to a specific combination of conditions that could make 2026 different. When August finishes higher and the year's gain is between 10% and 17.5%—both true this year—September has averaged a 1.0% gain since World War II, according to Benzinga. Detrick also found that the final four months of the year finished higher in 10 of 11 comparable instances, with an average gain of 5.6%. However, he cautioned that the current midterm-election-year cycle could still generate turbulence in August and September. He identified 7,610, the S&P 500's June 2 peak, as a key support level to watch; a sustained break below that could weaken the technical picture.
Macro Risks: Inflation, Oil, and Fed Policy
While technical and seasonal indicators are relatively supportive, September will likely bring increased focus on the macroeconomic environment. With second-quarter earnings season nearly complete, economic data will increasingly drive market direction, according to Jack Janasiewicz, multiasset portfolio manager at Natixis Investment Managers, in comments to MarketWatch. Inflation remains a key watchpoint, as price pressures are elevated enough to keep the possibility of another Federal Reserve interest-rate hike on the table. That could create a headwind for equities after their strong run.
Geopolitical tensions add another layer of uncertainty. US stocks fell Monday as investors monitored heightened Middle East tensions and rising oil prices, following US-Iran strikes over the weekend. Higher oil prices could exacerbate inflationary pressures, complicating the Fed's policy outlook and potentially increasing market volatility. For related context, see our coverage on gold's steadiness ahead of the Fed decision and how inflation warnings are affecting rate hike odds.
Complacency as a Risk
Investors are also monitoring sentiment for signs of excessive comfort. CNBC's Mike Santoli pointed to the CBOE Volatility Index (VIX) falling below 15 as a signal worth watching, describing the low volatility as "eerie complacency," especially given that seasonal patterns typically point to higher volatility around this period. The concern is not that low volatility predicts an imminent decline, but rather that it leaves the market vulnerable to unexpected shocks.
In summary, the S&P 500's strong August performance and technical position above its 200-day moving average provide a solid foundation that could help it defy the September Effect. However, macroeconomic risks, including inflation, oil prices, and geopolitical events, remain significant. Investors should watch key support levels and economic data releases for clues on the market's direction. For more on potential September standouts, see BofA's picks for September.
This article is for informational purposes only and does not constitute financial advice.
