- Historical seasonality suggests the S&P 500 and TSX could face increased volatility during the second half of September.
- Gold has strengthened following its mid-year pullback, although Bruce Campbell says the direction of the U.S. dollar could play an important role in determining what comes next.
- A long-term indicator for the Russell 2000 has recently turned negative, raising a potential warning signal around risk in U.S. small caps.
- Volatility indicators remain mixed rather than pointing toward a broad increase in market stress, potentially creating opportunities to reposition portfolios heading into the fall.
September has arrived, bringing with it one of the market’s most closely watched seasonal periods.
In the latest Markets in Motion, StoneCastle Investment Management portfolio manager Bruce Campbell examines historical September performance, the outlook for gold, emerging risk signals among U.S. small caps and what volatility could mean for investors heading into the fall.
This article is being disseminated on behalf of StoneCastle Investment Management, a third-party issuer, and is intended for informational purposes only.
Historical data from EquityClock shows a tendency for the S&P 500 to perform relatively strongly during the first part of September before selling off later in the month. The TSX has displayed a broadly similar historical pattern, with choppier early-September trading followed by weakness heading toward the beginning of October.
Campbell stresses that seasonality should be treated more like “climate” than weather: it provides historical context rather than a prediction of exactly what markets will do this year.
Midterm election years add another dimension. Data highlighted from Jones Trading shows the S&P 500 has historically fallen an average of 2 per cent during September in midterm election years, before strengthening in October and from November through year-end.
Gold, small caps and volatility
Gold is also following its seasonal pattern relatively closely. After topping around February and March and declining into June, the precious metal has accelerated again. Campbell says the U.S. dollar remains an important factor to watch because of its inverse relationship with gold.
Elsewhere, a long-term indicator followed by Campbell for the Russell 2000 has recently crossed into negative territory. While that does not necessarily signal an immediate market decline, he views it as something investors should keep in mind when assessing risk across small-cap stocks.
Volatility indicators, meanwhile, are providing a more mixed picture. Rather than moving collectively toward higher volatility, different measures are heading in different directions.
Campbell’s takeaway is therefore not that September is signalling a major market event, but that a potentially choppier month could provide opportunities to reposition portfolios toward stronger opportunities heading into the fall.
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