Although the month of September used to open strong, the S&P 500 has declined nine times in the last fifteen years on the first trading day. With fund managers tending to sell underperforming positions ahead of the end of the third quarter, there have also been some nasty selloffs near month-end over the years, explains Jeff Hirsch, editor of The Stock Trader’s Almanac.

Recent substantial declines occurred following the terrorist attacks in 2001 (DJIA: –11.1%), 2002 (DJIA –12.4%), the collapse of Lehman Brothers in 2008 (DJIA: –6.0%), US debt ceiling debacle in 2011 (DJIA –6.0%) and in 2022 (DJIA –8.8%).

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I do not anticipate any major selloff and expect new highs around year-end. But I do expect some sort of surprise to send stocks into another mild correction before the Q4 rally ensues.

Nobody wants to talk about it or hear about it, but inflation appears to be done cooling. Further hints at higher inflation will likely heat up the “higher-for-longer” chatter and weigh on stocks.

I’m also concerned that we are poised for a September surprise in the financial sector. I would not be shocked if one of the rating agencies comes out and announces a host of bank downgrades, perhaps starting at the top with a big bank. They did warn us back in March during the banking scare and most recently with the Fitch downgrade of the US credit rating.

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Either way, expect any weakness to be temporary and for the market to continue to track the seasonal and four-year cycle patterns illustrated in these charts as it has all year and since 2021.

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