Webcast #38: September Expected to be Another Volatile Month (8 minutes)

September tends to be the most volatile month in the market. With many money managers on vacation during August, trading volumes tend to be quite thin throughout the summer. Upon returning to work in September, trading volumes pick up and volatility historically intensifies.

Going back to the 1970’s, September is the only month that posted a negative median return. As the chart below suggests, the median return in September was -0.3% between 1970 and 2021. Of those fifty-two Septembers since 1970, a negative return was posted 54% of the time. The worst years were 1974 (-11.9%), 2002 (-11.0%), and 2008 (-9.4%). There were good years too, such as 2010 (+8.7%), 1998 (+6.2%), and 1996 (+5.4%).

We expect this upcoming September to be another volatile month.

To flood the market with liquidity and keep rates low during the pandemic, the U.S. Federal Reserve was purchasing various types of fixed income securities. As prices go up, rates move in the opposite direction. With the pandemic now over and inflation the top concern, the Fed is now reversing their policy to provide “easy money” to the marketplace. Starting in September, the Fed will allow $95 billion of assets ($60 billion in Treasuries and $35 billion in mortgage-backed securities) it purchased during the pandemic to mature and roll off its Balance Sheet each month. This may lead to market volatility.

Later in the month, the much-anticipated Federal Open Market Committee meeting will determine the extent to which it increases rates. Following its two-day meeting, Chair Jay Powell will host a press conference on September 21 to discuss the interest rate decision and answer questions from the media. Whether rates will increase by 50 or 75 basis points on that day is currently a subject of debate. The two main data points that will carry the heaviest influence on the next rate decision will be the August inflation print (to be released on September 13) and the August employment situation (to be released on September 2). This will without question lead to market volatility.

Because September is historically a volatile month with price swings in both directions, we will actively be looking for attractive prices that offer lucrative investment opportunities for our clients.